UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
x☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Fiscal Year Ended December 31, 20172022
or
o☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 0-23702
STEVEN MADDEN, LTD.
(Exact name of registrant as specified in its charter)
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| Delaware | | 13-3588231 |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
incorporation or organization) | | |
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| 52-16 Barnett Avenue, | Long Island City | New York | | 11104 |
| (Address of principal executive offices) | | (Zip Code) |
52-16 Barnett Avenue, Long Island City, New York 11104
(Address of principal executive offices) (Zip Code)
(718) 446-1800
(Registrant's Telephone Number, Including Area Code) (Registrant's telephone number, including area code)
Securities Registered Pursuantregistered pursuant to Section 12(b) of the Act:
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Title of Each Classeach class | Trading Symbol(s) | Name of Each Exchangeeach exchange on Which Registeredwhich registered |
Common Stock, par value $.0001$0.0001 per share | SHOO | The NASDAQ StockGlobal Select Market LLC |
Preferred Stock Purchase Rights | The NASDAQ Stock Market LLC |
Securities Registered Pursuantregistered pursuant to Sectionsection 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Yesx No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Act.
Yeso☐ No x
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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.
Yesx ☒ No o
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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, 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 and post such files).
Yesx ☒ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
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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”,filer,” “accelerated filer”,“smallerfiler,” “smaller reporting company”company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filerx | ☒ | | Accelerated filero | ☐ | | Emerging growth company | ☐ |
Non-accelerated filero (do not check if smaller reporting company) | ☐ | | Smaller reporting companyo |
| Emerging growth company o
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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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yeso☐ No x
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The aggregate market value of the common equity held by non-affiliates of the registrant (assuming for these purposes, but without conceding, that all executive officers and directors are “affiliates” of the registrant) as of June 30, 2017,2022, the last business day of the
registrant's most recently completed second fiscal quarter, was $2,341,862,448$2,508,122,837 (based on the closing sale price of the registrant's common stock on that date as reported on The NASDAQ Global Select Market).
The number of outstanding shares of the registrant's common stock as of February 27, 201823, 2023 was 58,782,00976,880,759 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
PARTPart III INCORPORATES CERTAIN INFORMATION BY REFERENCE FROM THE REGISTRANT'S DEFINITIVE PROXY STATEMENT FOR THE REGISTRANT'S 2018 ANNUAL MEETING OF STOCKHOLDERS.incorporates certain information by reference from the registrant's definitive proxy statement for the registrant's 2023 Annual Meeting of Stockholders.
TABLE OF CONTENTS
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| PART III | |
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| PART IV | |
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
SAFE HARBOR STATEMENT UNDER THE U.S. PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Annual Report on Form 10-K contains “forward-looking statements” (as that term is defined inwithin the federal securities laws), which are made pursuant tomeaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. TheseExamples of forward-looking statements include, among others, statements with regard to futureregarding revenue projected 2018 results,and earnings spending, margins, cash flow, customer orders, expected timing of shipment of products, inventory levels, future growth or success in specific countries, categories or market sectors, continued or expected distribution to specific retailers, liquidity, capital resourcesguidance, plans, strategies, objectives, expectations and market risk, strategies and objectives and other future events. More generally,intentions. You can identify forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or simply state future results, performance or achievements, and can be identified by the use of forward looking languagewords such as“believe,as: “may,” “will,” “expect,” “believe,” “should,” “anticipate,” “expect,“project,” “estimate,“predict,” “plan,” “intend,” “plan,or “estimate,” “project,” “will be,” “will continue,” “will result,” “could,” “may,” “might,”and similar expressions or any variationsthe 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 words with similar meanings. Factorsstatements are made. We caution investors that may affect our results include, but are not limited to, the risks and uncertainties discussed in Item 1A of this Annual Report on Form 10-K.
Any such forward-looking statements are inherently subject to risks and uncertainties, many of which are beyond our control,cannot be predicted with accuracy and some of which may influence the accuracybe outside of the statements and the projections upon which the statements are based and could cause our control. Our actual results toand financial condition may differ materially from those projectedindicated in these forward-looking statements. As such, investors should not rely upon them. Important risk factors include:
•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 strongly caution youmanufacture 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 and temporary closure of Company-operated and wholesale partner retail stores, resulting in a significant reduction in revenue for an indeterminable period of time;
•legal, regulatory, political and economic risks that thesemay 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 Item 1A. “Risk Factors” in this Annual Report on Form 10-K, should be considered in evaluating any forward-looking statements arecontained in this report. We do not guarantees of future performance or events. Our actual results, performance and achievements could differ materially from those expressed or implied in these forward-looking statements. We undertake noany obligation to publicly update or revise any forward-looking statements,statement, including without limitation, any guidance regarding revenue or earnings, whether fromas a result of new information, future eventsdevelopments or otherwise.
PART I
ACCESS TO COMPANY REPORTS AND OTHER INFORMATION
Steven Madden, Ltd. and its subsidiaries (collectively, the “Company”, "we", "our", or "us", as applicable) was incorporated in New York on July 9, 1990, reincorporated under the same name in Delaware in November 1998 and completed its initial public offering in December 1993.
We file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other reports and information with the Securities and Exchange Commission (the “SEC”) pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These reports, any amendments to such reports, and our proxy statements for our stockholders' meetings are available free of charge on the "Investor Relations" section of our website, https://www.stevemadden.com/, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. We will provide paper copies of such filings free of charge upon request. In addition, the SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding us, which is available at http://www.sec.gov.
We have a Code of Ethics for our Chief Executive Officer and our senior financial officers, as well as a Code of Business Conduct and Ethics for members of our Board of Directors, each of which is attached as an exhibit to our 2014 Annual Report on Form 10-K filed with the SEC on February 26, 2015. We also have a Code of Conduct that is applicable to all of our employees, which is attached as an exhibit to our 2018 Annual Report on Form 10-K filed with the SEC on February 28, 2019. Each of these codes is posted on our website at https://investor.stevemadden.com/corporate-governance/highlights. We will provide paper copies of these codes free of charge upon request. We intend to disclose on our website any amendments to, or waivers of, these codes that would otherwise be reportable on a current report on Form 8-K. Such disclosure would be posted within four business days following the date of the amendment or waiver.
ITEM 1. BUSINESS
($ in thousands, except share and per share data)
Overview
Steven Madden, Ltd. and its subsidiaries (collectively, the “Company”, "we", "our", "us", as applicable) design, source, and market and sell fashion-forward name brandbranded and private label footwear, accessories and apparel for women, men, and childrenchildren. We distribute our products in the wholesale channel through department stores, mass merchants, off-price retailers, shoe chains, online retailers, national chains, specialty retailers, independent stores, and name brandclubs throughout the United States, Canada, Mexico, and private label fashion handbagsEurope, and accessories. We also license some ofother international markets through our trademarks for usejoint ventures in connectionIsrael, South Africa, China, Taiwan, Malaysia, and the Middle East along with the manufacture, marketingspecial distribution arrangements in certain European countries, North Africa, South and sale ofCentral America, Australia, and various products by third party licensees. Ourcountries in Asia. In addition, our products are marketeddistributed through our retail stores and our e-commerce websitesdirect-to-consumer channel within the United States, Canada, Mexico, and Europe, and our joint ventures in Israel, South Africa, China, and Taiwan, as well as better department stores, major department stores, mid-tier department stores, specialty stores, luxury retailers, value priced retailers, national chains, mass merchants, online retailers and catalog retailers throughout the United States, Canada, Mexico, certain European nations, including Albania, Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Hungary, Ireland, Kosovo, Latvia, Lithuania, Luxembourg, the Netherlands, Norway, Poland, Romania, Russia, Slovakia, Slovenia, Sweden and Switzerland, and Tunisia. In addition, we have special distribution arrangements for the marketing of our products in Asia, Europe (excluding the aforementioned nations), India, the Middle East, South and Central America and New Zealand. We offerEast.
Our product lines include a broad range of updatedcontemporary styles designed to establish or complement and capitalize on market trends.trends, complemented by core product offerings. We have established a reputation for design creativity and our ability to offer quality, trend-right products in popular styles at affordable prices,accessible price points, delivered in an efficient manner and time frame.
Steven Madden, Ltd. was incorporated asThe following is a New York corporation on July 9, 1990, reincorporated under the same name in Delaware in November 1998 and completed its initial public offering in December 1993. Shares of Steven Madden, Ltd. common stock, $0.0001 par value per share, currently trade on the NASDAQ Global Select Market under the symbol “SHOO”. Our principal executive offices are located at 52-16 Barnett Avenue, Long Island City, NY 11104. Our telephone number is (718) 446-1800 and our website address is http://www.stevemadden.com.
We file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other reports and information with the Securities and Exchange Commission (the “SEC”) pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These reports, any amendments to such reports, and our proxy statements for our stockholders' meetings are available free of charge, on the "Investor Relations" sectiondescription of our websitebusiness as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. We will provide paper copies of such filings free of charge upon request. The public may read and copy any materials filed by us with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information regarding the operation of the SEC's Public Reference Room is available by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding us, which is available at http://www.sec.gov.December 31, 2022.
OUR SEGMENTS
We have a Code of Ethics for our Chief Executive Officer and our senior financial officers, as well as a Code of Business Conduct and Ethics specific to directors of the Company and a Code of Business Conduct and Ethics that is applicable to all of our employees, each of which are attached as exhibits to our 2014 Annual Report on Form 10-K filed with the SEC on February 26, 2015 and posted on our website, http://www.stevemadden.com. We will provide paper copies of these codes free of charge upon request. We intend to disclose on our website any amendments to, or waivers of, these codes that would otherwise be reportable on a current report on Form 8-K. Such disclosure would be posted within four business days following the date of the amendment or waiver.
Net sales for 2017 increased 10.5% to $1,546,098 from $1,399,551 in 2016. Net income attributable to Steven Madden, Ltd. decreased 2.5% to $117,948 in 2017 compared to $120,911 in 2016. Diluted earnings per share in 2017 increased to $2.04 per share on 57,830,000 diluted weighted average shares outstanding compared to $2.03 per share on 59,556,000 diluted weighted average shares outstanding in the prior year.
Recent Developments
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act. The Tax Cuts and Jobs Act made broad and complex changes to the U.S. tax code which impacts 2017 in many ways, including, by reducing the U.S. federal corporate tax rate and imposing a one-time transition tax on certain undistributed earnings of foreign subsidiaries. See additional information regarding the impact of the Tax Cuts and Jobs Act in Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” and Note M "Income Taxes" to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.
Product Distribution Segments
Our business is comprised of five distinct segments: Wholesale Footwear Wholesale Accessories, Retail, First Cost and Licensing.
Our Wholesale Footwear segment is compriseddesigns, 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 Footwear business consists of fashion-forward footwear for women, men, and children. Our products are designed and marketed for various lifestyles and include dress shoes, boots, booties, fashion sneakers, sandals, and casual shoes. The Wholesale Footwear segment primarily consists of the following brands: Steve Madden Women's®®, Madden Girl®Dolce Vita®, Steve Madden Men's®Betsey Johnson®, Madden®GREATS®, Madden NYC, Dolce Vita®Blondo®, DV by Dolce Vita®Anne Klein®, Mad Love®Love®, Steven by Steve Madden®, Report®, Superga® (under license), Betsey Johnson®, Betseyville®, Steve Madden Kids®, FREEBIRD by Steven®, Stevies®, B Brian Atwood®, Blondo®, Kate Spade® (under license), Avec Les Filles® (under license), Alice & Olivia® (through a joint venture) and Superga. This segment also includes our International business and certain private label footwear business. The agreement with the Alice & Olivia® terminated on December 31, 2017.This segment represented 56.3% of total revenue during 2022.
Wholesale Accessories/Apparel
Our Wholesale AccessoriesAccessories/Apparel segment is compriseddesigns, 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 Wholesale Accessories/Apparel business primarily consists of Big Buddha®handbags, apparel, small leather goods, belts, soft accessories, fashion scarves, wraps, gifting, and other trend accessories. The Wholesale Accessories/Apparel segment primarily consists of the following brands: Steve Madden®, Madden NYC,Anne Klein®, Betsey Johnson®Johnson®, Steve Madden®Cejon®, Steven by Steve Madden®, Madden Girl®, Cejon®, B Brian Atwood®, Luv Betsey®, DKNY® (under license) and Donna Karan® (under license) accessories brands andDolce Vita®. This segment also includes our International business and certain private label handbag and accessories business. This segment represented 18.6% of total revenue during 2022.
Direct-to-Consumer
Steven MaddenOur Direct-to-Consumer segment, which was referred to as the Retail Inc., our wholly-owned retail subsidiary, operatessegment in previous filings, consists of Steve Madden Steven® and SupergaDolce Vita® full-price retail stores, domesticallySteve Madden® outlet stores, and internationally,our directly-operated digital e-commerce websites. Our retail stores are located in regional malls and shopping centers, as well as high streets in major cities across the United States, Canada, Mexico, Israel, South Africa, Taiwan, China, and the Middle East. Our stores play an important role in our test-and-react strategy, and also serve as fulfillment and return locations for our e-commerce business. Our stores also serve as a marketing tool that allows us to strengthen global brand recognition and to showcase selected items from our full line of branded and licensed products. In addition to these testing and marketing benefits, we have also been able to leverage sales information gathered at Steve Madden Superga, Betsey Johnsonretail stores and our websites to assist our wholesale customers in their order placement and inventory management. We believe that our retail stores and websites enhance overall sales and profitability and our ability to react quickly to changing consumer demands.
In 2022, we added 28 brick-and-mortar stores and closed 10 brick-and-mortar stores. As of December 31, 2022, we operated 232 brick-and-mortar retail stores, including 165 Steve Madden full-price stores, 66 Steve Madden outlet stores and one Dolce Vita full-price store. In addition, during 2022, we opened two concessions in Taiwan and one concession in China, ending the year with 20 Company-operated concessions in international markets.
In addition to our stores, our Direct-to-Consumer business offers products online through our e-commerce websitessites in the United States, Canada, Mexico, Europe, Israel, South Africa and comprises our Retail segment.Asia. We operate six branded e-commerce sites, which include: www.stevemadden.com, www.dolcevita.com, www.betseyjohnson.com, www.blondo.com, www.greats.com, and www.superga-usa.com.
This segment represented 24.6% of total revenue during 2022.
First Cost
Our First Cost segment represents commission based activities of one of our wholly-owned subsidiaries that earns commissions for servingwhere the Company serves as a buying agent for footwear products under private labels for many of the country's large mass-market merchandisers, shoeselect national chains, and other value priced retailers.
Our Licensing segment is engaged in the licensing of the Steve Madden®, Steven by Steve Madden® and Madden Girl® trademarks for use in the manufacture, marketing and sale of outerwear, hosiery, jewelry, watches, sunglasses, hair accessories, umbrellas, bedding, luggage, and men’s leather accessories. We license the Stevies® trademark for use in the manufacture, marketing and sale of outerwear exclusively to Target. In addition, we license our Betsey Johnson® trademark for use in the manufacture, marketing and sale of women's and children’s apparel, hosiery, swimwear, fragrance and beauty, sleepwear, activewear, jewelry, watches, bedding, luggage, stationary, umbrellas, and household goods. We also license our Dolce Vita® trademark for use in connection with the manufacture, marketing and sale of women's and children's apparel.
Wholesale Footwear Segment
Steve Madden Women's. We design, source and market our Steve Madden brand to department stores, specialty stores, luxury retailers, value priced retailers, national chains, mass merchants, online retailers and catalog retailers throughout the United
States. The Steve Madden brand has become a leading life-style brand in the fashion conscious marketplace. Steve Madden Women's offers fashion forward footwear designed to appeal to customers (primarily women ages 16 to 35) seeking exciting, new footwear designs at affordable prices. New products for Steve Madden Women's are test marketed at Company-owned retail stores. Typically, within a few days, we can determine if the test product appeals to our customers. This enables us to use our flexible sourcing model to rapidly respond to changing trends and customer preferences, which we believe is essential for success in the fashion industry.
Madden Girl. We design, source and market a full collection of directional young women's shoes under the Madden Girl® brand. Madden Girl® is geared for young women ages 16 to 23, and is an “opening price point” brand currently sold at major department stores, mid-tier retailers and specialty stores.
Steve Madden Men's. We design, source, and market a life style collection of men's footwear for the fashion forward man, ages 18 to 45 years old, under the Steve Madden® brand. Retail channels include major department stores, mid-tier department stores, better specialty stores, online retailers and independent shoe stores throughout the United States. Price points for Steve Madden Men's products range in price from $70 to $150 at retail per pair.
Madden.The Madden® brand is a denim friendly collection of footwear designed to meet the ever evolving needs of the trend conscious male consumer, ages 13 to 35 years old. Madden products range from $45 to $90 and are sold to national specialty stores, better department stores, mid-tier department stores, online retailers and independent specialty stores.
Steven. We design, source and market women's fashion footwear under the Steven® trademark through major department stores, better footwear specialty stores and shopping networks throughout the United States as well as in our retail stores. Priced a tier above the Steve Madden Women's brand, Steven products are designed to appeal principally to fashion conscious women, ages 25 to 45, who shop at department stores, footwear boutiques and shopping networks.
Stevies and Steve Madden Kids. Our Stevies® and Steve Madden Kids® brands are designed, sourced and marketed to appeal to young girls, ages 6 to 12. Our Stevies® brand is sold exclusively to Target, while our products sold under Steve Madden Kids® brand are distributed through department stores, specialty stores, online retailers and independent boutiques throughout the United States.
Betsey Johnson. On October 5, 2010, the Company acquired the Betsey Johnson® trademark and substantially all other intellectual property of Betsey Johnson LLC. Products branded under the Betsey Johnson shoe brand are distributed through department stores and online retailers.
Superga. On February 9, 2011, the Company entered into a license agreement with Basic Properties America Inc. and BasicNet S.p.A., for the use of the Superga® trademark in connection with the marketing and sale of footwear. Founded in Italy in 1911, Superga is recognized for its fashion sneakers in a wide range of colors, fabrics and prints for women, men and children.
FREEBIRD by Steven. We design, source, and market a full collection of handcrafted, Goodyear welted boots. The designs are inspired by vintage Americana and created using time-honored craftsmanship. The FREEBIRD by Steven® collection conveys a unique fashion life style that transcends multiple generations. FREEBIRD by Steven® products are currently sold, at retail prices ranging from $195 to $450 per pair at major department stores, mid-tier retailers, and specialty boutiques.
Report. The Report® brand was acquired in our May 2011 acquisition of Topline Corporation ("Topline") and its subsidiaries. The Report® brand is a junior women's footwear brand with price points ranging from $20 to $150 per pair. We design, manufacture, market and sell our Report branded products to major department stores, mid-tier department stores and independently-owned boutiques throughout the United States.
Mad Love. The Mad Love® brand is an exclusive beach-to-the-street life style brand created to appeal to women with a young attitude and active life style and marketed exclusively to Target.
Dolce Vita. In August 2014, the Company acquired the Dolce Vita® and DV® brands and other intellectual property assets in the acquisition of Dolce Vita Holdings, Inc. Dolce Vita® is a contemporary women's footwear brand with price points ranging from $120 to $350 per pair. Our Dolce Vita® brand products are distributed through major department stores, mid-tier department stores and independently-owned boutiques throughout the United States. The DV® brand has price points ranging from $20 to $75 per pair and is currently distributed exclusively at Target.
Brian Atwood. In March 2014, the Company acquired the Brian Atwood® designer brand and the B Brian Atwood® contemporary brand from Brian Atwood IP Company LLC. Founded in 2011, Brian Atwood is known for luxury shoes manufactured in Italy. We design, manufacture, market and sell our Brian Atwood branded products primarily to major department stores throughout the United States.
Blondo. In January 2015, the Company acquired the intellectual property and related assets of Blondo, a fashion-oriented footwear brand specializing in waterproof leather boots, booties, shoes and sneakers. Founded over 100 years ago, Blondo products are sold to wholesale customers, including better department stores and specialty boutiques in both the United States and Canada.
In January 2017, the Company acquired all of the issued and outstanding capital stock of Schwartz & Benjamin, Inc., a family-owned business that specialized in licensed brands and private label footwear. As a consequence of the acquisition, the Company acquired licenses to manufacture, market and sell footwear under the Kate Spade® and Avec Les Filles® trademarks as well as a design/manufacturing agreement with Rebecca Minkoff® and a joint venture with Alice & Olivia®.
Kate Spade. The Kate Spade® brand, known for its whimsical fashion, is an entry-level luxury footwear brand primarily distributed through department stores throughout the United States. The price points of footwear bearing the Kate Spade® brand range from $48 to $400 per pair with the core product price ranging from $198 to $298 per pair.
Avec Les Filles. The Avec Les Filles® brand is geared toward the millennial customer and is primarily distributed through department stores throughout the United States as well as online at core product prices ranging from $98 to $150 per pair.
Alice & Olivia. The Alice & Olivia® brand is a contemporary luxury footwear brand distributed primarily through department stores throughout the United States with core product prices ranging from $195 to $450 per pair.
Anne Klein. In January 2018, the Company entered into a license agreement with Nine West Development LLC for a license to use the Anne Klein® trademark in connection in the marketing and sale of footwear. Established in the U.S. in 1968, the Anne Klein® brand is recognized as being synonymous with American sportswear.
International Division. The International division, utilizing the brands discussed above, markets products to better department stores, major department stores, mid-tier department stores, specialty stores, luxury retailers, value priced retailers, national chains, mass merchants, online retailers and catalog retailers throughout the United States, Canada, Mexico, certain European nations, including Albania, Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Hungary, Ireland, Kosovo, Latvia, Lithuania, Luxembourg, the Netherlands, Norway, Poland, Romania, Russia, Slovakia, Slovenia, Sweden and Switzerland, and Tunisia. In addition, the International division works through special distribution arrangements for the marketing and sales of our products in Asia, Europe (excluding the aforementioned nations), India, the Middle East, South and Central America and New Zealand.
Private label business. We design, source and market private label footwear primarily to mid-tier chains and mass market merchants. In addition, we design, source and market footwear for third party brands, such as Material Girl® and Candies®.
Wholesale Accessories Segment
Our Wholesale Accessories segment designs, sources and markets name brands (including our Steve Madden®, Steven by Steve Madden®, Madden Girl®, Betsey Johnson®, Madden NYC, Big Buddha®, B Brian Atwood®, DKNY® (under license), Donna Karan® (under license), Anne Klein® (under license beginning in 2018) and Luv Betsey® brands) and private label fashion handbags and accessories to department stores, mass merchants, value priced retailers, online retailers and specialty stores throughout the United States, Canada, Mexico and our International distributor network. In addition, we market and sell cold weather accessories, fashion scarves, wraps and other trend accessories primarily under our Cejon®, Steve Madden®, Betsey Johnson® and Big Buddha® brand names and private labels to department stores and specialty stores.
Retail Segment
As of December 31, 2017, we owned and operated206 retail stores including 138 Steve Madden full price stores, 60 Steve Madden outlet stores, three Steven stores, one Superga store and four e-commerce websites (Steve Madden, Superga, Betsey Johnson and Dolce Vita). In 2017, we opened 13 new full price stores, six new outlet stores and closed two full price stores in the United States. Steve Madden stores are located in major shopping malls and in urban street locations across the United States, Canada, Mexico, South Africa, China and Taiwan. Comparative store sales (sales of those stores, including the e-commerce websites, that were open for all of 2017 and 2016) decreased 3.2% in fiscal year 2017 from the prior year. The Company excludes
new locations from the comparable store base for the first year of operations. Stores that are closed for renovations are removed from the comparable store base.
We anticipate that the Retail segment can enhance the Company's overall sales and profitability while increasing recognition for our brands. Additionally, our retail stores enable us to evaluate the appeal of new products and designs to our customers and respond accordingly, which, in turn, strengthens the product development efforts of our two Wholesale segments. We expect to open 11 to 13 new retail stores and close 8 to 10 locations in 2018.
First Cost Segment
The First Cost segment earns commissions for serving as a buying agent for footwear products under private labels for many of the large mass-market merchandisers, shoe chains and other mid-tiervalue-priced retailers. As a buying agent, we utilize our expertise and our relationships with shoe manufacturers to facilitate the production of private label shoesproduct to customer specifications. We believe that operating in the private label mass merchandising market provides us additional non-branded sales opportunities and leverages our overall sourcing and design capabilities. Our First Cost segment earns commissions serving as a buying agent for the procurement of women's, men's and children's footwear for large retailers, including Kohl's, Sears and K-Mart. In addition, by leveraging the strength of our Steve Madden brands and product designs, we have beenare able to partially recover our design and product and development costs from our suppliers.
Licensing
Our Licensing Segment
We license oursegment is engaged in the licensing of the Steve Madden®, Steven by Steve Madden®Madden® and Madden Girl®Betsey Johnson® trademarks for use in connection with the manufacture, marketing and sale of outerwear, hosiery, jewelry, watches, sunglasses, hair accessories, umbrellas, bedding, luggage,select apparel, accessory, and men’s leather accessories. We license the Stevies® trademark for use in connection with the manufacture, marketing and sale of outerwear exclusively to Target. In addition, the Company licenses the Betsey Johnson® trademark for use in connection with the manufacture, marketing and sale of women's and children’s apparel, hosiery, swimwear, fragrance and beauty, sleepwear, activewear, jewelry, watches, bedding, luggage, stationary, umbrellas, and household goods. We also license the Dolce Vita® trademark for use in connection with the manufacture, marketing and sale of women's and children's apparel.home categories as well as various other non-core products. Most of our license agreements require the licensee to pay us a royalty based on actual net sales,revenue, a minimum royalty in the event thatthe specified net salesrevenue targets are not achieved and a percentage of sales for advertising the brand.
Corporate
SeeCorporate 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, legal, human resources, information technology, cyber security, corporate social responsibility, and other shared services.
For additional information on our segments, refer to Note OS – Operating Segment Information in the Notes to our consolidated financial statements included in this Annual Report on Form 10-KReport.
OUR BRANDS
Steve Madden. We design, source, and market fashion-forward footwear, accessories, and apparel for additional information relatingwomen, men, and children under the Steve Madden brand. The Steve Madden brand is a leader in the fashion footwear industry with permission from the customer to sell products across most footwear categories including dress shoes, boots, booties, fashion sneakers, and casuals. While the brand appeals to a wide demographic, the core target consumer is 16 to 35 years old. The Steve Madden brand is sold globally, including the U.S., Canada, Mexico, Europe, Asia-Pacific, Africa, and Latin America.
Dolce Vita. Dolce Vita® is a contemporary women's brand known for its effortless style for the modern individual. Dolce Vita is more than just shoes and handbags, it’s about creating a community, supporting underrepresented voices, and responsibly building a brand that we can be proud of with every step. The Dolce Vita brand is sold globally, including the U.S., Canada, Israel, Australia, and Indonesia. We acquired the Dolce Vita® footwear trademark in August of 2014 and in December 2021, we acquired the remaining intellectual property rights of Dolce Vita including handbags and other accessories.
Anne Klein. The Anne Klein® brand has a rich heritage going back over 50 years and is recognized for its dedication to timeless American classics. Anne Klein footwear and accessories are sold in the U.S., Canada, Mexico, and Israel. We entered into a license agreement with WHP Global for a license to use the Anne Klein®, AK Sport®, AK Anne Klein Sport®, and Lion Head Design® (collectively "Anne Klein®") trademarks in connection with the design, marketing, and sale of footwear and accessories in January of 2018.
Blondo. The Blondo® brand is a 100+ year-old footwear brand recognized for its quality water-resistant leather boots, booties, casual shoes and sneakers. The Blondo brand is primarily sold in the U.S. and Canada. We acquired the intellectual property and related assets of Blondo® in January of 2015.
GREATS. The GREATS® brand is a Brooklyn-based, digitally native footwear brand founded in 2014 which specializes in premium quality, responsibly made sneakers for men and women. The GREATS® brand is primarily sold in the U.S. We acquired the GREATS® brand in August of 2019.
Mad Love. The Mad Love® brand is a beach-to-the-street lifestyle brand created to appeal to women with a young attitude and active lifestyle, and marketed exclusively to Target Corporation. In spring 2021, Mad Love® became a sustainable brand, designed and created with the mission to make our five operating segments.earth a better place.
Superga. On February 9, 2011, we entered into a license agreement with Basic Properties America Inc. and BasicNet S.p.A., for the use of the Superga® trademark in connection with the marketing and sale of footwear. The Superga license was terminated as of December 31, 2022.
Product Design and Development
PRODUCT DESIGN AND DEVELOPMENT
We have established a reputation for our creative designs, marketing and trendytrend-right products at affordable price points. Our future success will substantially depend on our ability to continue to anticipate and react swiftlyquickly to changing consumer demands. To meet this objective, we have developed what we believe is an unparalleled design process that allows us to recognizeteam and respond quickly to changing consumer demands.process. Our design team strives to create designs that fitare true to our image,DNA, reflect current or anticipated trends and can be manufactured in a timely and cost-effective manner. Most new Steve Madden products are tested in select Steve Madden retail stores.stores and on www.stevemadden.com. Based on these tests, among other things, management selects the Steve Madden products that are then offered for wholesale and retaildirect-to-consumer distribution nationwide.worldwide. We believe that our design and testing processes andcombined with our flexible sourcing modelsmodel provide the Steve Maddenour brands with a significant competitive advantage allowingand allow us to mitigate the risk of incurring costs associated with the production and distribution of less desirable designs.
MANUFACTURING AND SUPPLY CHAIN
Product Sourcing and Distribution
We source each of our product lines separately based on the individual design, style and quality specifications of the products in suchour various brands and product lines.categories. We do not own or operate any foreign manufacturing facilities; rather, we use agents and our own sourcing office to source our products from independently-ownedindependently owned manufacturers primarily in China, Cambodia, Mexico, Brazil, Vietnam, India, Italy Brazil, Mexico, India, Vietnam, The Netherlands, The Dominican Republic and South Korea.other European countries. We have established relationships with a number of manufacturers and agents in each of these countries. We have not entered into any long-term manufacturing or supply contracts. We believe that a sufficient number of alternative sources exist for the manufacture of our products.
We continually monitor the availability of the principal raw materials used in our footwear, accessories, and apparel which are currently available from a number of sources in various parts of the world. We track inventory flow on a regular basis, monitor sell-through data and
incorporate input on product demand from wholesale customers. We use retailers' feedback to adjust the production of products on a timely basis, which helps reduce the close out of slow-moving products.
The suppliers and manufacturers of our products are required to meetadopt our quality,Supplier Code of Conduct 2.0 which specifies that they comply with all local laws and regulations governing human rights, safetyworking conditions, anti-corruption laws, restricted substances, and other standard requirements.environmental compliance, including animal welfare and conflicts minerals, before we conduct business with them. We are committed to the safetyworking with manufacturers, suppliers, vendors, and well-beingagents that share our Company’s goal of the workers throughout our supply chain.
maintaining socially responsible and sustainable business practices.
Our products are manufactured overseas and a majoritymost of our products filling domestic orders are shipped via ocean freight carriers to portsour third-party distribution facilities in California and to a lesser extent New Jersey, alsoand via truck from Mexico to our third partythird-party distribution facility in Texas, with the greatest reliance on the California ports. ToTexas. We rely to a lesser extent we rely on air and ground freight carriers for the shipping of products. Once our products arrive in the U.S., we distribute them mainly from fivesix third-party distribution centers, threefour located in California, one located in Texas, and one located in New Jersey. Our products are also distributed through twoa Company-operated distribution centerscenter located in New JerseyCanada and Canada.through our third-party distribution facilities in Mexico and Europe. By utilizing distribution facilities specializing in distribution fulfillment to effect distribution tofor certain wholesale accounts,customers and Steve Madden retail stores and Internet customers, we believe that our customersconsumers are served more promptly and efficiently. For our international markets,Suppliers of products for our businesses in Canada, Mexico, Europe and Mexico are shippedour joint ventures in Israel, South Africa, China, Taiwan, Malaysia, and the Middle East ship to ports in the respective countries, and productscountries. Products for our overseas distributors are shipped to freight forwarders primarily in China and Mexico where the distributor arranges for subsequent shipment. See Item 1A “Risk Factors” below for a discussion of the risk of supply chain disruptions.
DISTRIBUTION
Customers
Our wholesale customers consist principally of better department stores, major department stores, mid-tier department stores, national chains, mass merchants, value priced retailers, specialty stores, online retailers and catalog retailers. These customers include Target Corporation, Nordstrom, Inc., Macy's, Inc., The TJX Companies, Inc., Wal-Mart Stores, Inc., DSW, Inc., Ross Stores, Inc., Kohl's Corporation, Amazon.com, Inc. and Payless ShoeSource, Inc. For the year ended December 31, 2017, Target Corporation represented 13.4% of total accounts receivable and Wal-Mart Stores, Inc. represented 14.6% of total accounts receivable. The Company did not have any customers who accounted for more than 10% of total net sales or any other customers who accounted for more than 10% of total accounts receivable.
Distribution Channels
United States, Canada, Mexico, Europe, South Africa, China and Taiwan
We sell2022, our products principally through department stores, specialty stores, online retailers, luxury retailers, national chains and mass merchants in the United States, Canada, Mexico, certain European nations including Albania, Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Hungary, Ireland, Kosovo, Latvia, Lithuania, Luxembourg, the Netherlands, Norway, Poland, Romania, Russia, Slovakia, Slovenia, Sweden and Switzerland, and Tunisia. In addition, we sell our products in our Company-owned retail stores in the United States, Canada and Mexico, under our joint ventures in South Africa, China and Taiwan, and on our e-commerce websites. For the year ended December 31, 2017, our RetailWholesale segment and our two Wholesale segmentsDirect-to-Consumer segment generated net salesrevenue of approximately $272,246$1,589,566 and $1,273,852,$521,729, or 18%74.9% and 82%24.6% of our total net sales,revenue, respectively. Each of these distribution channels is described below.
Steve Madden, Steve Madden Outlet, Steven and Superga Retail Stores. As of December 31, 2017, we operated 138 Steve Madden full priceWholesale. Our products are distributed in our wholesale channel to over 2,000 retailers, including department stores, within the United States, Canada and Mexico and under our joint ventures in South Africa, China and Taiwan. We also operated 60 Steve Madden outlet stores, three Stevenmass merchants, off-price retailers, shoe chains, online retailers, national chains, specialty retailers, independent stores, and one Superga store within the United States. The Company also operated four e-commerce websites (Steve Madden, Superga, Betsey Johnson and Dolce Vita). We believe that our retail stores will continue to enhance overall sales, profitability, and our ability to react swiftly to changing consumer trends. Our stores also serve as a marketing tool that allows us to strengthen brand recognition and to showcase selected items from our full line of branded and licensed products. Furthermore, our retail stores provide us with venues through which to test and introduce new products, designs and merchandising strategies. We often test new designs at our Steve Madden retail stores before scheduling them for mass production and wholesale distribution. In addition to these test marketing benefits, we have been able to leverage sales information gathered at Steve Madden retail stores to assist our wholesale customers in order placement and inventory management.
A typical Steve Madden store is approximately 1,500 to 2,000 square feet and is located in a mall or street location that we expect will attract the highest concentration of our core demographic, style-conscious customer base. The Steven and Superga stores, which are generally the same size as our Steve Madden stores, have a more sophisticated design and format styled to appeal to a more mature target audience. The typical outlet store is approximately 2,000 to 2,500 square feet and is located within outlet malls throughout the United States. In addition to carefully analyzing mall demographics and locations, we set profitability guidelines for each potential store site. Specifically, we target well trafficked sites at which the demographics fit our consumer
profile and seek new locations where the projected fixed annual rent expense stays within our guidelines. By setting these guidelines, we seek to identify stores that will contribute to our overall profitability both in the near and longer terms.
Department Stores. We currently sell our products to over 2,500 doors of 17 department storesclubs throughout the United States, Canada, Mexico, and Europe, and other international markets through our joint ventures in Israel, South Africa, China, Taiwan, Malaysia, and the Middle East along with special distribution arrangements in certain
European nations. Our major accounts include Macy's, Inc., Dillard's, Inc., Nordstrom, Inc., Belk, Inc.countries, North Africa, South and Lord & Taylor.
We provide merchandising support to our department store customers including, in-store fixturesCentral America, Australia and signage, supervision of displays and merchandising of our various product lines. Our wholesale merchandising effort includes the creation of in-store concept shopscountries in which to showcase a broader collection of our branded products. These in-store concept shops create an environment that is consistent with our image and are designed to enable the retailer to display and sell a greater volume of our products per square foot of retail space. In addition, these in-store concept shops encourage longer term commitment by the retailer to our products and enhance consumer brand awareness.
In addition to merchandising support, our key account executives maintain weekly communications with their respective accounts to guide them in placing orders and to assist them in managing inventory, assortment and retail sales. We leverage our sell-through data gathered at our retail stores to assist department stores in allocating their open-to-buy dollars to the most popular styles in the product line and phasing out styles with weaker sell-through, which, in turn, reduces markdown exposure at season's end.
National chains and mass merchants. We currently sell to national chains and mass merchants throughout the United States, Canada, Mexico and certain European nations. Our major accounts include Target Corporation, Wal-Mart Stores, Inc., Kohl's Corporation, and The J.C. Penney Company.
Specialty Stores/Catalog Sales. We currently sell to specialty store locations throughout the United States, Canada, Mexico and certain European nations. Our major specialty store accounts include DSW, Inc., Famous Footwear, Journeys and Payless ShoeSource, Inc.We offer our specialty store accounts the same merchandising, sell-through and inventory tracking support offered to our department store accounts. Sales of our products are also made through various catalogs, suchas Bloomingdale's and Victoria's Secret.
Off-Price. We currently sell to off-price retailers throughout the United States, Canada, Mexico and certain European nations. Our major accounts include The TJX Companies, Inc., Ross Stores, Inc. and Burlington Stores, Inc.
Internet Sales. We operate four Internet e-commerce website stores (Steve Madden, Superga, Betsey Johnson and Dolce Vita) where customers can purchase numerous styles of our Steve Madden Women's, Steven, Madden Men's, FREEBIRD by Steven, Superga, Betsey Johnson and Dolce Vita, as well as selected styles of Madden Girl, footwear and accessory products. We also sell to online retailers throughout the United States and Canada. Our major accounts include Zappos and Amazon.
International Distributors
In addition to the countries and territories mentioned above, our products are available in many other countries and territories worldwide via retail selling and distribution agreements.Asia. Under the terms of thesethe distribution agreements, the distributors and retailers purchase product from the Companyus and are generally required to open a minimum number of stores each year and to pay a fee for each pair of footwear purchased and an additional sales royalty as a percentage of sales or a predetermined amount per unit of sale. Most of the distributors are required to purchase a minimum number of our products within specified periods. The agreements currently in place expire on various dates throughFebruary 14, 2031 and include automatic renewals at the distributors' option provided certain conditions are met. These agreements
Our top ten wholesale customers, in no particular order, include: Nordstrom, Macy's, Dillard's, DSW, The TJX Companies, Ross Stores, Burlington Stores, Amazon, Walmart, and Target.
For the year ended December 31, 2022, the Company did not have any customers who accounted for more than 10% of total revenue. At December 31, 2022, three customers accounted for 20.6%, 16.2%, and 11.1% of total accounts receivable. The Company did not have any other customers who accounted for more than 10% of total accounts receivable.
Direct-to-Consumer. Our Direct-to-Consumer channel consists of Steve Madden® and Dolce Vita® full-price retail stores, Steve Madden® outlet stores, Steve Madden® shop-in-shops and directly-operated e-commerce websites. Our retail stores are exclusivelocated in their specific territories, which includeAsia, certain European nations, India,regional malls and shopping centers, as well as high streets in major cities across the United States, Canada, Mexico, Israel, South Africa, Taiwan, China, and the Middle East, SouthEast. Through our joint venture partnerships in China and Central AmericaTaiwan, we also have company-operated concessions.
As of December 31, 2022, we operated 232 brick-and-mortar retail stores, including one Dolce Vita full-price store and New Zealand.66 Steve Madden outlet stores, and six e-commerce websites. In addition, we had 20 Company-operated concessions in international markets. Out of the 232 total brick-and-mortar retail stores, 115 were located outside of the U.S.
Competition
COMPETITION
The fashion industry is highly competitive. We compete with specialty shoenumerous domestic and international footwear, apparel, and accessory companies as well as companies with diversified footwear product lines, such as Aldo, Jessica Simpson, Sam Edelman, Ugg and Vince Camuto.companies. Our competitors may have greater financial and other resources than we do. We believe effective advertisingmarketing and marketing,advertising, favorable brand image, fashionable styling, high quality, value, and fast manufacturing turnaround are the most important competitive factors, and we intend to continue to employ these elements in our business. However, we cannot be certain that we will be able to compete successfully against our current and future competitors, or that competitive pressures will not have a material adverse effect on our business, financial condition, and results of operations.
MARKETING
Marketing and Sales
We have focused on creating an integrated brand building programa full-funnel marketing strategy that covers all stages of the customer journey, to establish Steve Maddenour Company as a leading designer and marketer of fashion footwear, accessories, and apparel for a diverse set of style-conscious young women and men.consumers. Principal top of funnel marketing activities include digital brand marketing, social media and digitalinfluencer marketing, efforts,experiential events, in-store and online promotions, and public relations includingfocusing primarily on digital product and brand placements, in life style and fashion magazines and digital outlets,celebrity seeding, as well as personalpublic and media appearances by our founder andFounder, Creative and Design Chief, Steve Madden,Madden. We foster high value lifetime customer relationships with investments in marketing technology and in-store promotions.talent, both in-house and via strategic partnerships with external agencies. We continue to promote our e-commerce websites where customers can purchase Steve Madden Women's, Steven, Madden Men's, FREEBIRD by Steven, Superga,®, Dolce Vita®, Betsey Johnson®, Blondo®, and Dolce Vita, as well as selected styles of Madden Girl, footwear and accessory products, as well as view exclusive content, participate in contests and “live chat” with customer service representatives. We also connect with our customers through social media forums including Twitter, Facebook and Instagram.GREATS® products.
Management Information SystemsMANAGEMENT INFORMATION SYSTEM (MIS) Operations
OPERATIONS
Sophisticated information systems are essential to our ability to maintain our competitive position and to support continuedour growth. Our wholesale information system is an Enterprise Resource Planning (“ERP”) system. Thissystem is an integrated system that supports our wholesale business in the areas of finance and accounting, manufacturing-sourcing, purchase order management, customer order management, and inventory control. We completed the implementation of this new ERP system for our wholesale business in 2014 and implemented the system in three of our acquired businesses in 2015 and in two additional acquired businesses in 2016. In 2017, we completed the implementation of the ERP system for Asia first-cost and sourcing operations and for recently-acquired Schwartz & Benjamin. In 2014, we completed the implementation of a new warehouse management system that is utilized by our third-party logistics providers and, during 2015, implemented this warehouse management system in a company-owned warehouse. This warehouse management system is fully integrated with our ERP system. All of our North American wholesale businesses (other than Canada, which has a separate ERP system) and our Asia sourcing operations are now operating onoperated through this ERP system. In 2017, we completedOur warehouse management system is utilized by the implementationmajority of a new point of saleour third-party logistics providers and is fully integrated with our ERP system. A point-of-sale system for our U.S. retail stores that is integrated with a retail inventory management/store replenishment system. ComplimentingWe have transitioned our e-commerce software to a major cloud-based provider. Complementing all of these systems are ancillary systems and third-party information processing services, including, among others, supply chain, business intelligence/data warehouse, Electronic Data Interchange, credit card processing, and payroll. We undertake updates of all of these management information systems on a periodic basis in order to ensure that our functionality is continuously improved.
Intellectual PropertyINFORMATION SYSTEMS
The Company maintains its information technology and security policies, comprised of risk management policies and procedures surrounding the Company’s information systems, cybersecurity practices and protection of confidential information. The Company’s Chief Information Security Officer has ultimate oversight of the Company’s cyber risk management policies and procedures, and chairs quarterly Information Security Steering Committee meetings, which provides cooperation, collaboration, and consensus driven information security guidance to both the Information Technology Department, and the Company as a whole. Additionally, the Board of Directors receives quarterly updates on these topics. As part of the Company’s information security program, all global employees are required to take annual training on information security awareness, including cybersecurity, global data privacy requirements and IT compliance measures. We also conduct periodic third-party assessments to test our cybersecurity controls, including our ecommerce sites, our mobile applications, corporate systems and network security (including Wi-Fi), and store systems, point-of-sale software and network security (including Wi-Fi). Additionally, we maintain network security and cyber liability insurance in order to provide a level of financial protection in the event of certain covered cyber losses and data breaches.
TrademarksTRADEMARKS
Our strategy for the continued growth of our business includes expanding our presence beyond footwear, accessories, and apparel through the selective licensing of our brands. We consider our Company-owned trademarks to be among our most valuable assets and have registered many of our marks in the United States and 94149 other countries and in numerous International Classes. From time to time, we adopt new trademarks and new logos and/or stylized versions of our trademarks in connection with the marketing of new product lines. We believe that these trademarks have significant value and are important for purposes of identifying theour Company, the marketing of our products and the products of our licensees, and distinguishing them from the products of others. What follows is a list of the trademarks
Trademarks we believe areto be most significant to our business:
|
| |
Steve Madden® | Report® |
Steven by Steve Madden® | Report Signature® |
Steven® | R Design® |
Madden Girl® | Brian Atwood® |
Stevies® | B Brian Atwood® |
Big Buddha® | Dolce Vita® |
Betseyville® | DV BY DOLCE VITA® |
Betsey Johnson® | DV® |
LUV BETSEY plus Kiss Design® | Wild Pair® |
LUV BETSEY by Betsey Johnson Design® | MadLove® |
Blondo® | Betsey Johnson plus Kiss Logo® |
Steve Madden plus Design® | Report Seattle® |
Blondo Waterproof plus Heart Design® | R2® |
SM New York® | Topline® |
SM New York plus Design® | Dolcetta® |
Madden Girl by Steve Madden® | DV8® |
Steve Madden plus Heart Logo® | JD FISK® |
Stevies plus Design® | B Blondo plus Design® |
Big Buddha plus Design® | Studio B® |
Big Buddha love big. Live Buddha plus Design® | Studio Blondo® |
Betsey Johnson Too Too® | Blue By Betsey Johnson® |
We act aggressively to register trademarksbusiness include: Steve Madden®, Madden Girl®, Madden NYC®, Betsey Johnson®, LUV BETSEY by Betsey Johnson Design®, Dolce Vita®, DV®, DV Dolce Vita®, MadLove®, Blondo®, Blondo Waterproof plus Heart®, Steven®, SM Pass®, and we monitor their use in order to protect them against infringement. There can be no assurance, however, that we will be able to effectively obtain rights to our marks throughout all of the world. Moreover, no assurance can be given that others will not assert rights in, or ownership of, our marks and other proprietary rights or that we will be able to resolve any such conflicts successfully. Our failure to adequately protect our trademarks from unlawful and improper appropriation may have a material adverse effect on our business, financial condition, results of operations and liquidity.
Trademark Licensing
Our strategy for the continued growth of the Company's business includes expanding the Company's presence beyond footwear and accessories through the selective out-licensing of our brands. As of December 31, 2017, weGREATS®. We license our Steve Madden®, Steven by Steve Madden® and Madden Girl® trademarks for use in connection with the manufacture, marketing and sale of outerwear, hosiery, jewelry, watches, sunglasses, hair accessories, umbrellas, bedding, luggage, and men’s leather accessories. We license the Stevies®® trademark for use in connection with the manufacture, marketing, and sale of women’s outerwear, exclusively to Target. In addition, the Company licensessleepwear and intimates, hosiery, jewelry, hair accessories, watches, eyeglasses, sunglasses, umbrellas, bedding and bath, luggage, fragrance, children’s apparel, and men’s leather accessories. We license the Betsey Johnson®Johnson® trademark for use in connection with the manufacture, marketing, and sale of women's and children’s apparel, hosiery, swimwear, fragrance and beauty, sleepwear, activewear,medical scrubs, jewelry, watches, eyeglasses, sunglasses, stationary, bedding and bath, luggage, stationary, umbrellas, and household goods. We also license the Dolce Vita® trademark for use in connection with the manufacture, marketing and sale of women's and children's apparel. Most of our license agreements require the licensee to pay us a royalty based on actual net sales, a minimum royalty in the event that specified net sales targets are not achieved and a percentage of sales for advertising the brand.
self-care products.
In addition to the licensing of our trademarks, we also in-license the trademarks of third parties for use in connection with certain of our product lines. Generally, these licensing arrangements require us to make advertising payments to the licensor as well as royalty payments equal to a percentage of our net salesrevenue and/or a minimum royalty and in some cases additional payments in the event that specified net salesrevenue targets are not achieved.
In August 2017, we entered into a license agreement with Donna Karan Studio LLC forFor additional information on our licensing arrangements, refer to Note B – Summary of Significant Accounting Policies and Note O – Commitments, Contingencies and Other in the right to manufacture, market and sell women's belts with the DKNY® and Donna Karan® brands. The agreement, unless extended, expires on December 31, 2020.
In January 2017, we acquired all of the outstanding capital stock of Schwartz & Benjamin, Inc., and, as a consequence of the acquisition, acquired (i) licenses to manufacture, market and sell footwear under the Kate Spade® and Avec Les
Filles® brands and (ii) a joint venture for the Alice & Olivia® brand. As of December 31, 2017, the Alice & Olivia® joint venture agreement was terminated.
Through a license agreement with Basic Properties America Inc. and BasicNet S.p.A, we have the right to use the Superga® trademark in connection with the marketing and sale of footwear through December 31, 2022.
See Notes A and N to our consolidated financial statements included in this Annual Report on Form 10-K for additional disclosure regarding these licensing arrangements.Report.
HUMAN CAPITAL RESOURCES
Employees
OnAs of February 1, 2018,2023, we employed approximately 3,8844,000 employees globally, with approximately 2,200 of whomthese employees located in the United States and 1,800 located internationally. Of these employees, approximately 2,4972,800 work on a full-time basis and approximately 1,3871,200 work on a part-time basis.part-time. Most of our part-time employees work in the RetailDirect-to-Consumer segment. Approximately 2,554 of our employees are located in the United States, approximately 709 employees are located in Hong Kong and China, approximately 353 employees are located in Canada, approximately 163 employees are located in Mexico, approximately 84 employees are located in South Africa and approximately 21 employees are located in Europe. None of our employees are represented by a union. Our management considers relations with our employees to be good. The Company hasWe have never experienced a material interruption of itsour operations due to a labor dispute.
Culture
SeasonalitySteve Madden is for the bold, expressive, and Other Factorsambitious. Our core values – authenticity, initiative, tenacity, humility, and trust are key to our competitive edge and are embedded throughout all levels of our Company. They motivate our growth, inspire our innovation, define our culture, and set the standard for all of our actions.
•Authenticity: Show up to work as your true self
•Initiative: Act upon good ideas quickly and be ready to iterate
•Tenacity: Look at problems from all sides and be resourceful
•Humility: Think from the perspective of others and always be open to learning
•Trust: Build strong relationships with good will and integrity
Career Development
The fashion landscape is constantly shifting and evolving, which makes it especially important for us to invest in the ongoing career development of our employees. In service of this objective, we constantly seek out, promote and improve upon internal programs and processes that make it possible for our employees to reach their full potential. Some examples of this focus include our ongoing professional development relationship with the University of Arizona Global Campus, our tuition reimbursement program, our internal employee learning opportunities, and external conference and workshop offerings around specific industry content as well as leadership, coaching, and management training. In addition, in 2021 we launched SM Learning Sessions, a monthly, Company-wide training and development program where we invite internal and external subject matter experts to present on various topics. Mentoring, annual performance evaluations and feedback are also key elements of our career development efforts at our Company.
Diversity, Equity, and Inclusion
We believe that recruiting, employing, and retaining people from all backgrounds, ethnicities, genders, lifestyles, and belief systems have been the cornerstones of meeting the needs of our diverse consumer base and building a global business. By embracing a diverse and inclusive workplace, we create an environment that offers all our employees opportunities to succeed. We want all our employees to be as successful as they can be and to reach their full potential no matter who they are, where they are from, or what they believe. In the spirit of this core belief, we strive to build an increasingly inclusive culture where all employees feel free to express themselves and have opportunities to grow. A few highlights of our diversity initiatives include:
•we established a Diversity and Inclusion Council made up of key leaders in our Company to oversee the implementation of our detailed Diversity, Equity, and Inclusion Strategic Plan;
•we added three new members to our Board of Directors, each of whom are people of color and bring new perspectives to the highest level of Company leadership;
•our employees formed three employee resource groups – one for Black employees and allies called Black Sole, one for LGBTQ+ employees and allies called SM Pride, and one for Hispanic employees and allies called De La Sole;
•we launched “Tune-In Tuesday,” a weekly email of internal job openings to encourage career development and advancement;
•we signed the “Open to All” pledge with other major brands and retailers;
•we joined the Black in Fashion Council;
•we implemented Company-wide diversity and inclusion training;
•we joined Hive Diversity as well as contributed $100,000 to Howard University and partnered with the university to establish diverse pipelines of talent and expand our recruiting; and
•we launched Adaptive Kids footwear, soon to expand to adults.
Wellness
We see personal health and fitness of our employees as key to long-term professional success, which is why we offer benefits and programs focused on physical, emotional and financial well-being. These include mindfulness and meditation training, financial wellness seminars, health fairs, discounted gym memberships, free flu shots, paid-time-off to receive COVID-19 vaccination and boosters, on-site COVID testing and on-site discounted food. We also offer an Employee Assistance Program with a range of programs, resources and tools that can help with various issues. To help manage work-life balance, we offer a paid membership to Care.com so employees can find childcare, senior care, special needs care and other related services.
Charitable Giving
In December 2021, the Company formed The Steve Madden Corporate Foundation, a donor-advised fund established under Fidelity Charitable and managed by Rockefeller Capital Management. As part of the Company's charitable giving strategy, we made a $1 million contribution for each of 2022 and 2021, and we have since launched multiple shop-to-give campaigns across our various Company-owned e-commerce websites.
GOVERNMENT REGULATIONS
Our business is subject to various United States federal state, and local and foreign laws and regulations, including environmental, health and safety laws and regulations. In addition, we may incur liability under environmental statutes and regulations with respect to the contamination of sites that we own or operate or previously owned or operated (including contamination caused by prior owners and operators of such sites and neighboring properties, or other persons) and the off-site disposal of hazardous materials. We believe our operations are in compliance with the terms of all applicable laws and regulations and our compliance with these laws and regulations has not had, and is not expected to have, a material effect on our capital expenditures, cash flows, earnings or competitive position.
SEASONALITY AND OTHER FACTORS
Our operating results are subject to some variability due to seasonality and other factors. For example, the highest percentage of our boot sales have occurredoccur in the fall and winter months (our third and fourth fiscal quarters) and the highest percentage of our sandal sales have occurredoccur in the spring and summer months (our first and second fiscal quarters). Historically, some of our businesses, including our RetailDirect-to-Consumer segment, have experienced holiday retail seasonality. Our diverse range of product offerings, however, provides some mitigation to the impact of seasonal changes in demand for certain items. In addition to seasonal fluctuations, our operating results fluctuate from quarter to quarter as a result of the weather, the timing of holidays and larger shipments of footwear, market acceptance of our products, pricing and presentation of the products offered and sold, the hiring and training of additional personnel, inventory write downs for obsolescence, the cost of materials, the product mix among our wholesale, retaildirect-to-consumer and licensing businesses, the incurrence of other operating costs and factors beyond our control, such as general economic conditions and actions of competitors. SalesRevenue levels in any period are also impacted by customer decisions to increase or decrease their inventory levels in response to anticipated consumer demand. Our customers may cancel orders, change delivery schedulesdates or change the mix of products ordered with minimal notice to us.
BACKLOG
Backlog
We had unfilled wholesale customer orders of approximately $367,101$500,921 and $337,000,$839,381, as of February 1, 20182023 and 2017,February 1, 2022, respectively.Our backlog at a particular time is affected by a number of factors, including seasonality, supply chain lead time, timing of market weeks, and wholesale customer purchases of our core products through our open stock program. Accordingly, a comparison of backlog from period to period may not be indicative of eventual shipments.
ITEM 1A. RISK FACTORS
You should carefully consider the risks and uncertainties we describe below and the other information in this Annual Report on Form 10-K before deciding to invest in, sell or retain shares of our common stock. These are not the only risks and uncertainties that we face. Other sections of this report may discuss factors that could adversely affect our business. The retailOur industry is highly competitive and subject to rapid change. There may be additional risks and uncertainties that we do not currently know about, or that we currently believe are immaterial, or that we have not predicted, which may also harm our business or adversely affect us. If any of these risks or uncertainties actually occurs,occur, our business, financial condition, results of operations and liquidity could be materially harmed.
INDUSTRY RISKS
Risks RelatedThe fashion footwear, accessories and apparel industry is subject to theIndustryrapid changes in Which the Company Operatesconsumer preferences. If we do not accurately anticipate fashion trends and promptly respond to consumer demand, we could lose sales, our relationships with customers could be harmed and our brand loyalty could be diminished.
Constantly Changing Fashion Trends and Consumer Demands. The strength of our brands and our success depends in significant part upon our ability to anticipate and promptly respond to product and fashion trends as well as to anticipate, gauge and react to changing consumer demands in a timely manner. There can be no assurance that our products will correspond to the changes in taste and demand or that we will be able to successfully advertise and market products that respond to such trends.trends and customer preferences. If we misjudge the market
for our products, we may be faced with significant excess inventories for some products and missed opportunities as to others. In addition, misjudgments in merchandise selection could adversely affect our image with our customers resulting in lower sales and increased markdown allowances for customers, which could have a material adverse effect on our business, financial condition, results of operations and liquidity.
We face intense competition from both established companies and newer entrants into the market. Our failure to compete effectively could cause our market share to decline, which could harm our reputation and have a material adverse impact on our financial condition, results of operations and liquidity.
Intense Fashion Industry Competition. The fashion footwear, accessories and accessoriesapparel industry is highly competitive and barriers to entry are low. Our competitors include specialty companies as well as companies with diversified product lines. The recent marketMarket growth in the sales of fashion footwear, accessories and accessoriesapparel has encouraged the entry of many new competitors and increased competition from established companies. Many of these competitors, includingNine West, Guess?, Jessica Simpson, Ugg Aldo, Sam Edelman, Lucky Brand and Aldo,Vince Camuto, may have significantly greater financial and other resources than we do, and there can be no assurance that we will be able to compete successfully with these and other fashion footwear, accessories and accessoriesapparel companies. Increased competition could result in pricing pressures, increased marketing expenditures and loss of market share and could have a material adverse effect on our business, financial condition, results of operations and liquidity. We believe effective advertising
If we and marketing, favorable brandingthe retailers that are our customers are unable to adapt to recent and anticipated changes in the retail industry, the sales of Steve Madden® and our other trademarks, fashionable styling, high quality, competitive pricing and value are the most important competitive factors. We plan to continue to focus on these elements as we develop new products and businesses. Our inability to effectively advertise and market our products and respond to customer preferencesmay decline, which could have a material adverse effect on our business, financial condition, results of operations and liquidity.
Cyclical Nature of the Fashion Industry.The overall fashion industry is cyclical, and purchasing tends to decline during recessionary periods when disposable income is low. Likewise, purchases of contemporary shoes and accessories tend to decline during recessionary periods and also may decline at other times. There can be no assurance that we will be able to grow or even maintain our current level of revenues and earnings, or remain profitable in the future. Slow growth in the international, national or regional economies and uncertainties regarding future economic prospects, among other things, could affect consumer spending habits. The volatility and disruption of global economic and financial market conditions that began in 2008 has caused lingering declines in consumer confidence and spending in the United States and internationally. A further deterioration or a continued weakness of economic and financial market conditions for an extended period of time could have a material adverse effect on our business, financial condition, results of operations and liquidity.
A Rapidly Changing Retail Industry.In recent years, the retail industry has experienced consolidation and other ownership changes. In the future, retailers in the United States and in foreign markets may further consolidate, undergo restructurings or reorganizations, or realign their affiliations, any of which could decrease the number of stores that carry our products or our licensees’ products or increase the ownership concentration within the retail industry. Changing shopping patterns, including the rapid expansion of online retail shopping and the effect of the COVID-19 pandemic, have adversely affected customer traffic in mall and outlet centers, particularly in North America. We expect competition in the e-commerce market will intensify. As a greater portion of consumer expenditures with retailers occurs online and through mobile commerce applications, our brick-and-mortar retail customers who fail to successfully integrate their physical retail stores and digital retail may experience financial difficulties, including store closures, bankruptcies or liquidations. A continuation or worsening of these trends could cause financial difficulties for one or more of our major customers, which, in turn, could substantially increase our credit risk and have a material adverse effect on our results of operations, financial condition and cash flows. We have little or no control over how our customers will respond to the challenges posed by these changes in the retail industry. Our future success will be determined, in part, on our and our customers’ ability to manage the impact of the rapidly changing retail environment and identify and capitalize on retail trends, including technology, e-commerce and other process efficiencies that will better service our customers. If we and our customers fail to compete successfully, our businesses, market share, results of operations and financial condition willcould be materially and adversely affected. While such changes in the retail industry to date have not had a material adverse effect on
RISKS RELATING TO OUR COMPANY
The loss of Steve Madden, our businessfounder and Creative and Design Chief, or financial condition, results of operations and liquidity, there can be no assurance as to the future effect of any such changes.
Economic Uncertainty. Our opportunities for long-term growth and profitability are accompanied by significant challenges and risks, particularly in the near term. Specifically, our business is dependent on consumer demand for our products and the purchasemembers of our products by consumers is largely discretionary. We believe that declining consumer confidence accompanied with the tightening of credit standards, higher energy and food prices and unemployment rates and a decrease in consumers' disposable income has negatively impacted the level of consumer spending for discretionary items during the years ended December 31, 2017, 2016 and 2015. In addition, economic factors such as inflation, higher labor costs, increased transportation costs and higher healthcare and insurance costs may increase our costs of sales and operating expenses. Changes in economic conditions may have a negative effect on the Company's sales and results of operations during the year ending December 31, 2018 and thereafter.
Legal, Regulatory and Political Risks of a Global Economy. As aresult of our large and growing international operations, we are subject to risks associated with our operations in international markets as a result of a number of factors, many of which are beyond our control. These risks include, among other things:
the challenge of managing broadly dispersed foreign operations;
inflationary pressures and economic changes or volatilities in foreign economies;
the burdens of complying with the laws and regulations of the U.S. and foreign nations;
additional or increased customs duties, tariffs, taxes and other charges on imports or exports;
political corruption or instability;
geopolitical regional conflicts, terrorist activity, political unrest, civil strife, acts of war;
local business practices that do not conform to legal or ethical guidelines;
anti-American sentiment in foreign countries in which we operate;
delays in receipts of our products at our distribution centers due to labor unrest, increasing security requirements or other factors at U.S. or other ports;
significant fluctuations in the value of the dollar against foreign currencies;
increased difficulty in protecting our intellectual property in foreign nations;
restrictions on the transfer of funds between the U.S. and foreign nations; and
natural disasters in areas in which our businesses, customers, suppliers and licensees are located.
All of these factors could disrupt or limit the countries in which we sell or source our products or significantly increase the cost of operating in or obtaining materials originating from certain countries, result in decreased revenues and could materially and adversely affect our product sales, financial condition and results of operations.
Following the November 2016 U.S. election, the leaders of the U.S. government have increasingly focused on efforts to discourage U.S. corporations from outsourcing manufacturing and production activities to foreign jurisdictions, including through the possibility of imposing tariffs or penalties on goods manufactured outside the United States to attempt to discourage these practices. Changes in tax policy or trade regulations, such as the recently passed Tax Cuts and Jobs Act in the United States, material modifications or withdrawal from existing trade agreements, including the United States’ withdrawal from or significant renegotiation of the North America Free Trade Agreement (NAFTA), the disallowance of tax deductions on imported merchandise, or the imposition of new tariffs on imported products, could necessitate changes in the way we conduct business, including our product sourcing operations, and have a material adverse effect on our business and results of operations.
In June 2016, voters in the United Kingdom approved an advisory referendum, commonly referred to as “Brexit”, to withdraw from the European Union. Brexit has created political and economic uncertainty, particularly in the United Kingdom and the European Union, that may endure for years. The withdrawal of the United Kingdom from the European Union could significantly disrupt the free movement of goods, services, and people between the United Kingdom and the European Union, and increase legal and regulatory complexities, all of which could lead to higher costs of conducting business in Europe. Brexit could also encourage similar referendums in other European countries in which we do business. The terms of the United Kingdom's withdrawal from the European Union are uncertain. Its consequences could adversely impact consumer and investor confidence, and the level of consumer purchases of discretionary items and retail products, including our products. All of these factors could materially adversely affect our business, results of operations, and financial condition.
We are subject to the U.S. Foreign Corrupt Practices Act, which generally prohibits the payment of bribes to foreign officials to assist in obtaining or retaining business. We are also subject to anti-corruption laws of the foreign countries in which we operate. Although we have implemented policies and procedures that are designed to promote compliance with such laws, our employees, contractors and agents may take actions that violate our policies and procedures. Any such violation could result in sanctions or other penalties against the Company and have an adverse effect on our business, reputation and operating results.
Changes in Tax Laws Could Have an Adverse Effect Upon Our Financial Results. We are subject to income tax requirements in various jurisdictions in the United States and internationally. Legislation or other changes in the tax laws of the jurisdictions where we do business could increase our liability and adversely affect our after-tax profitability. In the United States, the Tax Cuts and Jobs Act, which was enacted on December 22, 2017, could have a significant impact on our effective tax rate, net deferred tax assets and cash tax expenses. Among other things, the Tax Cuts and Jobs Act reduces the U.S. corporate statutory tax rate, eliminates or limits deduction of several expenses which were previously deductible, requires a minimum tax on earnings generated by foreign subsidiaries, imposes a mandatory deemed repatriation tax on undistributed historic earnings of foreign subsidiaries and permits a tax-free repatriation of foreign earnings through a dividends-received deduction. We are currently evaluating the overall impact of the Tax Cuts and Jobs Act on our effective tax rate and balance sheet, but expect that the impact may be significant for our fiscal year 2018 and future periods.
Other jurisdictions are contemplating changes or have unpredictable enforcement activity. Increases in applicable tax rates, implementation of new taxes, changes in applicable tax laws and interpretations of these tax laws and actions by tax authorities in jurisdictions in which we operate could reduce our after tax income and have an adverse effect on our results of operations.
We May Be Subject to Additional Tax Liabilities as a Result of Audits by Various Taxing Authorities. We are subject to the tax laws and regulations of numerous jurisdictions as a result of our international operations. These tax laws and regulations are highly complex and significant judgment and specialized expertise is required in evaluating and estimating our worldwide provision for income taxes. We are subject to audit by the taxing authorities in each jurisdiction where we conduct our business., and any one of these jurisdictions may assess additional taxes against us as a result of an audit. Although we believe our tax estimates are reasonable, and we undertake to prepare our tax filings in accordance with all applicable tax laws, the final determination with respect to any tax audits, and any related litigation, could be materially different from our estimates or from our historical tax provisions and accruals. The outcome of any audit or audit-related litigationexecutive management team could have a material adverse effect on our operating results or cash flows in the periods for which that determination is made, and may require a restatement of prior financial reports. In addition, future period earnings may be adversely impacted by litigation costs, settlement payments or interest or penalty assessments.business.
Risks Related to Our Business
Dependence on Key Personnel.The growth and success of our Company since its inception more than a quarter century ago is attributable, to a significant degree, to the talents, skills and efforts of our founder and Creative and Design Chief, Steven Madden. An extended or permanent loss of the services of Mr. Madden could severely disrupt our business and have a material adverse effect on theour Company. In addition to Mr. Madden, the Company dependsWe also depend on the contributions of the members of our senior management team. Our senior executives have substantial experience and expertise in our business and industry and have made significant contributions to our growth and success as well.success. Competition for executive talent in the apparel,fashion footwear, accessories and accessoriesapparel industries is intense. While our employment agreements with Mr. Madden and most of our senior executives include a non-compete provision in the event of the termination of employment, the non-compete periods are of limited duration.duration and scope and the enforceability of such non-compete provisions are subject to existing and future laws. Although we believe we have depth within our senior management team, if we were to lose the services of our Creative and Design ChiefMr. Madden or any of our senior executives, and especially if any of these individuals were to join a competitor or form a competing company, our business and financial performance could be seriously harmed. A loss of the skills, industry knowledge, contacts and expertise of our Creative and Design ChiefMr. Madden or any of our senior executives could cause a setback to our operating plan and strategy.
Dependence Upon SignificantCustomers. Our customers consist principally of better department stores, major department stores, mid-tier department stores, specialty stores, luxury retailers, value priced retailers, national chains, mass merchants and catalog retailers. Certain of our department store customers, including some under common ownership, account for significant portions of our wholesale business. We generally enter into a number of purchase order commitments with our customers for each of our lines every season and do not enter into long-term agreements with any of our customers. Therefore, a decision by a significant customer, whether motivated by competitive conditions, financial difficulties or otherwise, to decrease the amount of merchandise purchased from us or to change its manner of doing business could have a material adverse effect on our business, financial condition, results of operations and liquidity.
Risks Associated with Extending Credit to Customers. We sell our products primarily to retail stores across the United States and extend credit based on an evaluation of each customer's financial condition, usually without collateral. Various retailers, including some of our customers, have experienced financial difficulties, which has increased the risk of extending credit to such retailers. However, our losses due to bad debts have been limited. Pursuant to the terms of our collection agency agreement, our factor, Rosenthal & Rosenthal, Inc., currently assumes the credit risk related to approximately 84% of our trade accounts receivable. In addition, we have letters of credit for approximately 3% of our trade accounts receivable. Still, if any of our customers experience a shortage of liquidity, the risk that the customer's outstanding payables to us would not be paid could cause us to curtail business with the customer or require us to assume more credit risk relating to the customer's account payable.
Risks Associated withExpansion of Retail Business. Our continued growth depends to a significant degree on whetherIf we are not successful in further developing and marketing our brands, and creating new brands, product categories and businesses that are appealing to our customers. The operation of company-owned Steve Madden, Steven and Superga stores and outlets is a significant part ofimplementing our growth strategy. During the year ended December 31, 2017,strategy or integrating acquired businesses, we opened 13 new full price stores, six new outlet stores and closed two full price stores in the United States. We have plans to open 11 to 13 new retail stores and close 8 to 10 locations in 2018. Our future expansion plan includes the opening of stores in new geographic markets as well as strengthening existing markets. New store openings involve substantial investments. New markets have in the past presented, and will continue to present, competitive and merchandising challenges that are different from those faced by us in our existing markets. There can be no assurance that we willmay not be able to open new stores,take advantage of certain market opportunities and if opened, that such new stores will be able to achieve sales and profitability levels consistent with management's expectations. may become less competitive.
Our retail expansion is dependent on the performance of our wholesale and retail operations, generally, as well as on a number of other factors, including our ability to:
locate and obtain favorable store sites;
negotiate favorable lease terms;
hire, train and retain competent store personnel;
anticipate the preferences of our retail customers in new geographic areas;
successfully integrate new stores into our existing operations.
Past comparable store sales results may not be indicative of future results and there can be no assurance that our comparable store sales results will increase or even be maintained in the future. Also, as we expand the number of our retail stores, we run the risk that our wholesale customers will perceive that we are increasingly competing directly with them, which may lead them to reduce or terminate purchases of our products.
Management of Growth. The size of our business continues to growhas grown organically and as a result of business acquisitions. In order to gain from our acquisitions, we must be effective in integrating the businesses acquired into our overall operations. Further, the expansion of our operations has increased and will continue to increase the demand on our managerial, operational and administrative resources. In recent years, we have invested significant resources in, among other things, our management information systems and hiring and training of new personnel. However, in order to manage currently anticipated levels of future demand, we may be required to, among other things, expand our distribution facilities, establish relationships with new manufacturers to produce our product,products and continue to expand and improve our financial, management and operating systems. We may experience difficulty integrating acquired businesses into our operations and may not achieve anticipated synergies from such integration. There can be no assurance that we will be able to manage future growth effectively and a failure to do so could have a material adverse effect on our business, financial condition, results of operations and liquidity.
DisruptionsIf one or more of our significant customers were to Product Delivery Systems and Associated Inventory Management Issues. A majorityreduce or stop purchases of our products, for U.S. distributionour sales and profits could decline.
The retailers that are shipped to us via ocean freight carriers to ports in California, New Jerseyour customers consist principally of department stores, specialty stores, luxury retailers, value priced retailers, national chains, mass merchants, and Texas with the greatest reliance on California ports. The trend-focused nature of the fashion industry and the rapid changes in customer preferences leave us vulnerable to risk of inventory obsolescence. Our reliance upon ocean freight transportation for the deliverypure-play e-commerce retailers. Certain of our inventory exposes us to various inherent risks,department store customers, including port workers’ union disputessome under common ownership, account for significant portions of our wholesale business. We generally enter into a number of purchase order commitments with our customers for each of our lines every season and associated strikes, work slow-downs and work stoppages, severe weather conditions, natural disasters and terrorism,do not enter into long-term agreements with any of which could result in delivery delays and inefficiencies, increase our costs and disrupt our business. Any severe and prolonged disruptioncustomers. Therefore, a decision by a significant customer, whether motivated by competitive conditions, financial difficulties or otherwise, to ocean freight transportation could forcedecrease the amount of merchandise purchased from us or to use alternate and more expensive transportation systems. For example, during the California port workers' dispute in 2014, we were forced to re-route our merchandise by air transit. Efficient and timely inventory deliveries and proper inventory management are important factors in our operations. Inventory shortages can adversely affect the timingchange its manner of shipments to customers and diminish sales and brand loyalty. Conversely, excess inventories can result in lower gross margins due to the excessive discounts and markdowns that may be necessary to reduce high inventory levels. Severe and extended delays in the delivery of our inventory or our inability to effectively manage our inventorydoing business could have a material adverse effect on our business, financial condition, results of operations and liquidity.
Disruption of Information Technology Systems and Websites. WeOur financial results are heavily dependent upon our information technology systems to record and process transactions and manage and operate all aspects of our business ranging from product design and testing, production, forecasting, ordering, transportation, sales and distribution, invoicing and accounts receivable management, quick response replenishment, point of sale support and financial management reporting functions. In addition, we have e-commerce websites. Given the nature of our business and the significant number of transactions in which we engage on an annual basis, it is essential that we maintain constant operation of our information technology systems and websites and that these systems and our websites operate effectively. We depend on our in-house information technology employees and third-parties including “cloud” service providers to maintain and periodically update and/or upgrade these systems and our websites to support the growth of our business. Despite our preventative efforts, our information technology systems and websites may, from time to time, be vulnerable to damage or interruption from events such as difficulties in replacing or integrating the systems of acquired businesses, computer viruses, security breaches and power outages. Cybersecurity attacks are becoming increasingly sophisticated and run the gamut from malicious software and ransomware to electronic security breaches to corruption of data and beyond. We are continually evaluating, improving and upgrading our information technology systems and websites in an effort to address these concerns. Any such problems or interruptions could result in loss of valuable business data, our customers' or employees' personal information, disruption of our operations and other adverse impacts to our business and require significant expenditures by us to remediate any such failure, problem or breach. In addition, we must comply with increasingly complex regulatory standards enacted to protect business and personal data and an inability to maintain compliance with these regulatory standards could subject us to legal risks and penalties.
We maintain $40 million of network-security insurance coverage, above a $250,000 deductible. This coverage and certain other insurance coverage may reduce our exposure to electronic data theft and sabotage. While we maintain other insurance
coverage aimed at addressing certain of these other risks, there can be no assurance that depending upon the nature of the issue presented, we will have insurance coverage available or that the amounts of coverage will be adequate.
Breach of Customer Privacy. A routine part of our business includes the gathering, processing and retention of sensitive and confidential information pertaining to our customers, employees and others. Although we believe that our information security and information technology systems and websites allow for the secure storage and transmission of private information regarding our customers and others, including credit card information and personal identification information, we may not have the resources or technical sophistication to anticipate or prevent the rapidly-evolving and complex cyber-attacks being unleashed by increasingly sophisticated hackers and data thieves. As a result, our facilities and information technology systems, as well as those of our third party service providers, may be vulnerable to cyber-attacks and breaches, acts of vandalism, ransomware, software viruses and other similar types of malicious activities. Any actual or threatened cyber-attack may cause us to incur costs, including costs related to the hiring of additional computer experts, business interruption, engaging third party cyber security consultants and upgrading our information security technologies. We also may be vulnerable to data and security breaches by us or by persons with whom we have commercial relationships resulting from misplaced or lost data, programming or human error, or other similar events. As a result of recent security breaches at a number of prominent companies, the media and public scrutiny of information security and privacy has become more intense and the regulatory environment has become more uncertain. Any compromise or breach of our information technology systems that results in the misappropriation, loss or other unauthorized disclosure of a customer's or other person’s confidential or proprietary information, whether by the Company or a third party service provider, could result in a loss of confidence and severely damage our reputation and relationship with our customers and others who entrust us with sensitive information, violate applicable privacy and other laws and adversely affect our business, as well as expose the Company to the risk of litigation and significant potential liability.
Foreign Sourcing and Manufacturing. Virtually all of our products are purchased through arrangements with a number of foreign manufacturers, primarily from China, Italy, Brazil, Mexico, India and Vietnam. During 2017, approximately 93% of our total purchases were from China. Risks inherent in foreign operations including work stoppages, transportation delays and interruptions, social unrest and political upheaval and changes in economic conditions, can result in the disruption of trade from the countries in which our manufacturers or suppliers are located, the imposition of additional regulations relating to imports, the imposition of additional duties, taxes and other charges on imports, significant fluctuations of the value of the dollar against foreign currencies, or restrictions on the transfer of funds, any of which could have a material adverse effect on our business, financial condition, results of operations and liquidity. Although we believe that we manage our exposure to the risk that any such economic or political condition will materially affect our ability to purchase products because we are aware of the availability of a variety of materials and alternative sources, we cannot be certain that we will be able to identify such alternative materials and/or sources without delay or without greater cost to us. Our inability to identify and secure alternative sources of supply in this situation could have a material adverse effect on our business, financial condition, results of operations and liquidity.
Impact of Custom Duties and Other Import Regulations. Virtually all of our products are imported and subject to United States custom duties. In addition, over time we have increased our sales of products outside of the United States. The United States and the countries in which our products are produced or sold, from time to time, may impose new quotas, duties, tariffs or other restrictions on imports or exports, may adversely adjust prevailing quotas, duties or tariff levels, or may impose sanctions in the form of additional duties to remedy perceived illegal actions. The current political landscape has introduced greater uncertainty with respect to future tax and trade regulations for United States companies like ours with significant business and sourcing operations outside the United States. We cannot predict whether, and to what extent, there may be changes to international trade agreements or whether quotas, duties, tariffs, exchange controls or other restrictions will be changed or imposed by the United States or by other countries. If we or our suppliers or licensees are unable to source raw materials or finished goods from the countries where we or they wish to purchase them, either because of such regulatory changes or for any other reason, or if the cost of doing so should increase, it could have a material adverse effect on our business, financial condition, results of operations and liquidity.quarterly fluctuations.
Manufacturers' Inability to Produce Our Goods in a Timely Manner or Meet Quality Standards. As is common in the footwear and accessories industries, we contract with foreign manufactures who produce virtually all of our products to our specifications. We do not own or operate any manufacturing facilities; therefore, we are dependent upon third parties for the manufacture of all of our products. The inability of a manufacturer to ship orders of our products in a timely manner or to meet our quality standards could cause us to miss the delivery date requirements of our customers for those items, which, in turn, could result in cancellation of orders, refusal to accept deliveries, a reduction in purchase prices and, ultimately, termination of a customer relationship, any of which could have a material adverse effect on our business, financial condition, results of operations and liquidity.
SEC Rules Relating to “Conflict Minerals” Require the Company to Incur Additional Expenses and Could Adversely Affect our Business. The SEC has promulgated final rules mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act requiring the disclosure of the use of tantalum, tin, tungsten and gold, known as “conflict minerals,” included in products either manufactured by public companies or as to which public companies have contracted for the manufacture. These rules, adopted in an effort to prevent inadvertent support of armed conflict in the Democratic Republic of Congo and certain adjoining countries (collectively, the “DRC”), require companies to investigate their supply chains to determine whether these minerals are present in their products and, if so, from where the minerals originate. The rules also require disclosure and annual reporting as to whether or not conflict minerals, if used in the manufacture of the products offered, originate from the DRC. We currently require our manufacturers to comply with policies addressing legal and ethical concerns relating to labor, employment, political and social matters including restrictions on the use of conflict minerals. Violation of these policies by our manufacturers could harm our reputation, disrupt our supply chain and/or increase our cost of goods sold. Additionally, violation of any of these policies by our manufacturers could cause us to face disqualification as a supplier for our customers and suffer reputational challenges. Due to the complexity of our supply chain, compliance with the rules requires significant efforts from a cross-operational team and diverts our management and personnel and results in potential costs of additional staff. Any of the foregoing could adversely affect our sales, net earnings, business and financial condition and results of operations.
Difficulty in Locating Replacement Manufacturers.Although we enter into a number of purchase order commitments each season specifying a time frame for delivery, method of payment, design and quality specifications and other standard industry provisions, we do not have long-term contracts with any manufacturer. As a consequence, any of these manufacturing relationships may be terminated, by either party, at any time. In addition, we may seek replacement manufacturers for various reasons, including a significant increase in the prices we are required to pay to existing manufacturers of our goods. Although we believe that other facilities are available for the manufacture of our products, there can be no assurance that such facilities would be available to us on an immediate basis, if at all, or be able to meet our quality standards and delivery requirements, or that the costs charged to us by such manufacturers would not be significantly greater than those presently paid.
Manufacturers' Failure to Use Acceptable Labor Practices and Comply with Local Laws and Other Standards. Our products are manufactured by numerous independent manufacturers outside of the United States. We also have license agreements that permit our licensees to manufacture or contract to manufacture products using our trademarks. We impose, and require that our licensees impose, on these manufacturers environmental, health, and safety standards for the benefit of their labor force. In addition, we require these manufacturers to comply with applicable standards for product safety. However, we do not control our independent manufacturers or licensing partners or their labor, product safety and other business practices and, from time to time, our independent manufacturers may not comply with such standards or applicable local law or our licensees may not require their manufacturers to comply with such standards or applicable local law. The violation of such standards and laws by one of the independent manufacturers with whom we contract or by one of our licensing partners, or the divergence of a manufacturer's or a licensing partner's labor practices from those generally accepted as ethical in the United States, could harm our reputation, result in a product recall or require us to curtail our relationship with and locate a replacement for such manufacturer, which, as noted in the immediately preceding risk factor, could be challenging. Any of these events could have a material adverse effect on our business, financial condition, results of operations and liquidity.
Seasonal and Quarterly Fluctuations. Our results of operations may fluctuate from quarter to quarter and are affected by a variety of factors, including:
the timing of holidays;
weather conditions;
•the timing of larger shipments of product;products;
•market acceptance of our products;
•the mix, pricing and presentation of the products offered and sold;
•the hiring and training of additional personnel;
•inventory write downs for obsolescence;
•the cost of materials;
•the product mix between wholesale, retail and licensing businesses;
•the incurrence of other operating costs; and
•factors beyond our control, such as health pandemics, general economic conditions, declines in consumer confidence and actions of competitors.competitors;
•the timing of holidays; and
•weather conditions.
In addition, we expect that our sales and operating results may be significantly impacted by the opening of new retail stores and the introduction of new products. Accordingly, the results of operations in any quarter will not necessarily be indicative of the results that may be achieved for a full fiscal year or any future quarter.
Extreme or Unseasonable Weather Conditionsunseasonable weather conditions in Locations in Which Welocations where we or Our Customersour customers and Supplierssuppliers are Located Could Adversely Affectlocated could adversely affect our Business. business.
Our corporate headquarters and principal operational locations, including retail, distribution and warehousing facilities, may be subject to natural disasters and other severe weather, and geological events, and climate-change related risks (including resource scarcity, rationing or unexpected costs from increases in fuel or raw material prices that may be caused by severe weather conditions) that could disrupt our operations. The occurrence of such natural events may result in sudden disruptions in business conditions of the local economies affected, as well as of the regional and global economies, andeconomies. Such disruptions may result in decreased demand for our products and disruptions in our management functions, sales channels and manufacturing and distribution networks, which could have a material adverse effect on our business, financial condition and results of operations. Extreme weather events and changes in weather patterns can also influence customer trends and shopping habits. Extended periods of unseasonably warm temperatures during the winter season or cool weather during the summer season may diminish demand for our seasonal merchandise. Heavy snowfall, hurricanes or other severe weather events in the areas in whichwhere our retail stores and the retail stores of our wholesale customers are located may decrease customer traffic in those stores and reduce our sales and profitability. If severeThere is growing concern that climate change may increase both the frequency and severity of extreme weather conditions and natural disasters. Any of these events force closure of or disrupt operations at the distribution centers we usecould result in decreased demand for our merchandise, weproducts and disruptions in our sales channels and manufacturing and distribution networks, which could incur higher costs and experience longer lead times to distribute our products to our retail stores, wholesale customers or e-commerce customers. If prolonged, such extreme or unseasonable weather conditions could adversely affecthave a material adverse effect on our business, financial condition and results of operations.
We extend credit to most of our wholesale customers, and their failure to pay for products shipped to them could adversely affect our financial results.
Inadequate Trademark ProtectionsWe extend credit to our wholesale customers based on an evaluation of each customer's financial condition, usually without collateral. Various retailers, including some of our customers, have experienced financial difficulties, which has increased the risk of extending credit to such retailers. Even though we seek to mitigate the risks of extending credit by factoring most of our accounts receivable and obtaining letters of credit or credit insurance for others, if any of our customers were to experience a shortage of liquidity, the risk that the customer's outstanding payables to us would not be paid could cause us to curtail business with the customer or require us to assume more credit risk relating to the customer's accounts payable.
Our stock price may fluctuate substantially if our operating results are inconsistent with our forecasts or those of analysts who follow us.
One of our primary business objectives is to maximize the long-term strength, growth and profitability of our Company, rather than to achieve an earnings target in any particular fiscal quarter. We believe that this longer-term goal is in our best interests and those of our stockholders. The trading price of our common stock periodically may rise or fall based on the accuracy of forecasts of our future performance. Our actual results may differ from our forecasts as the guidance is based on assumptions and expectations that may or may not come to pass. As such, we assume no responsibility to update any of our forward-looking statements at such times or otherwise. If and when we announce actual results that differ from our forecast and guidance, the market price of our common stock could be adversely affected. Investors who rely on these forecasts in making investment decisions with respect to our common stock do so at their own risk. We take no responsibility for any losses suffered as a result of changes in the price of our common stock.
In addition, outside securities analysts may follow our financial results and issue reports that discuss our historical financial results and their predictions of our future performance. These analysts' predictions are based upon their own opinions and could be different from our own forecasts. Our stock price could decline if our results are below the estimates or expectations of these outside analysts.
FOREIGN SOURCING RISKS
Disruptions to our product delivery systems and failure to effectively manage inventory based on business trends across various distribution channels could have a material adverse effect on our business, financial condition, results of operations and liquidity.
Our products are manufactured overseas and most of our products are shipped via ocean freight carriers. The trend-focused nature of the fashion industry and the rapid changes in customer preferences leave us vulnerable to the risk of inventory obsolescence. Our reliance upon ocean freight transportation for the delivery of our inventory exposes us to various inherent risks, including port congestion, severe weather conditions, natural disasters, and terrorism, any of which could result in delivery delays and inefficiencies, increase our costs and disrupt our business.
Any severe and prolonged disruption to ocean freight transportation could force us to rely on alternate and more expensive transportation systems. Efficient and timely inventory deliveries and proper inventory management are important factors in our operations. Inventory shortages can adversely affect the timing of shipments to customers and diminish sales and brand loyalty. Conversely, excess inventories can result in lower gross profit due to the increased discounts and markdowns that may be necessary to reduce high inventory levels. Severe and extended delays in the delivery of our inventory or our inability to effectively manage our inventory could have a material adverse effect on our business, financial condition, results of operations and liquidity.
Global inflation has also contributed to higher freight costs, which negatively affected our gross margin and profitability in the year ended December 31, 2022 and may continue to have a negative effect on our future operating results and profitability.
Our reliance on foreign manufacturers to provide materials or produce our goods in a timely manner or to meet our quality standards could cause problems if we experience a supply chain disruption and we are unable to secure an alternative source of raw materials or end products.
In 2022, the entire apparel industry, including our Company, continues to faced supply chain challenges as a result of COVID-19 including reduced freight availability and increased costs, port disruption, manufacturing facility closures, and related labor shortages and other supply chain disruptions. We do not own or operate any foreign manufacturing facilities and, therefore, are dependent upon third parties to manufacture most of our products. During 2022, 78% of our total purchases were manufactured in China. We also have no long-term manufacturing or supply contracts with any of our suppliers or manufacturers for the production and supply of our raw materials and products, and we compete with other companies for raw materials and production space. The risks inherent in the reliance on foreign manufacturing include work stoppages, transportation delays, public health emergencies, social unrest, changes in local economic and political conditions, and geopolitical conditions.
We have experienced, and may in the future experience, a significant disruption in the supply of raw materials and products and may be unable to locate alternative suppliers of comparable quality at an acceptable price, or at all. In addition, if we experience significant increased demand, or if we need to replace an existing supplier or manufacturer, we may be unable to locate additional supplies of raw materials or additional manufacturing capacity on terms that are acceptable to us, or at all, or we may be unable to locate any supplier or manufacturer with sufficient capacity to meet our requirements or fill our orders in a timely manner. Identifying a suitable supplier is an involved process that requires us to become satisfied with its quality control, responsiveness and service, financial stability, and labor and other ethical practices. Even if we are able to expand existing or find new manufacturing sources, we may encounter delays in production and added costs as a result of the time it takes to train our suppliers and manufacturers in our methods, products, and quality control standards.
Our supply of raw materials or manufacture of our products could be disrupted or delayed by the impact of health pandemics, and the related government and private sector responsive actions such as border closures, restrictions on product shipments, and travel restrictions. Delays related to supplier changes could also arise due to an increase in shipping times if new suppliers are located farther away from our markets or from other participants in our supply chain. The receipt of inventory sourced from areas impacted by COVID-19 has in some cases been slowed or disrupted and our manufacturers may also face similar challenges in receiving raw materials and fulfilling our orders. In addition, ocean freight was disrupted worldwide due to COVID-19 as there was much greater demand for shipping and reduced capacity and equipment in the post pandemic recovery period. Any delays, interruption, or increased costs in the supply of raw materials or manufacture of our products could have an adverse effect on our ability to meet customer demand for our products and have a material negative effect on our business, financial condition, results of operations and liquidity.
Changes in trade policies and tariffs imposed by the United States government and the governments of other nations could have a material adverse effect on our business and results of operations.
Our operations are dependent upon products purchased, manufactured and sold internationally. Our sources of supply are subject to the usual risks of doing business abroad, such as the implementation of, or potential changes in, foreign and domestic trade policies, increases in import duties, anti-dumping measures, quotas, safeguard measures, trade restrictions, restrictions on the transfer of funds and, in certain parts of the world, political instability and terrorism. In 2018 and 2019, the
United States government imposed significant tariffs and created the potential for significant additional changes in trade policies, including tariffs and government regulations affecting trade between the United States and countries where we purchase, manufacture and sell our products. These trends are affecting many global manufacturing and service sectors, including the footwear, accessories and apparel industries, and may cause us to face trade protectionism in many different regions of the world. These protectionist measures could result in increases in the cost of our products and adversely affect our sales and profitability.
Changes in regulatory, geopolitical, social, economic, or monetary policies and other factors may have a material adverse effect on our business in the future or may require us to exit a particular market or significantly modify our current business practices within that market. For example, in recent years both the U.S. and China have imposed new tariffs on each other related to the importation of certain product categories, including imports of select footwear, accessories and apparel into the U.S. from China. If the U.S. decides to impose additional tariffs on footwear, accessories, apparel, or any other of our goods imported from China, there can be no assurance that we will be able to offset all related increased costs. This potential increase in costs could be material to our business operations because approximately 78% of our products are currently sourced from China. We cannot predict if, and to what extent, there will be changes to international trade agreements or the resulting impact of any such changes on our business operations.
On December 31, 2020, the Generalized System of Preferences ("GSP") expired. GSP is a trade program that provides nonreciprocal, duty-free treatment for certain U.S. imports (including handbags) from qualifying developing countries including Cambodia, Myanmar, Thailand, Indonesia, Sri Lanka, the Philippines, and Pakistan, among others. We currently manufacture handbags in GSP countries, primarily Cambodia. The additional tariff to be paid on such products ranges from 4.6% to 20.0%. GSP has historically been renewed, despite lapsing several times, and upon renewal has been retroactive in nature. There is a current debate in Congress to reauthorize the program “as is” or revise GSP eligibility criteria to include environmental and labor conditions. If GSP is not renewed and our efforts to mitigate the impact of this additional tariff are not successful, the imposition of tariffs on handbags that we manufacture in impacted countries could have a material adverse effect on our business and results of operations.
If our manufacturers, the manufacturers used by our licensees or our licensees themselves fail to use acceptable labor practices or to otherwise comply with local laws and other standards, our business reputation could suffer.
Our products are manufactured by numerous independent manufacturers outside of the United States. We also have license agreements that permit our licensees to manufacture or contract to manufacture products using our trademarks. We impose, and require our licensees to impose, on these manufacturers environmental, health and safety standards for the benefit of their labor force. In addition, we require these manufacturers to comply with applicable standards for product safety. However, we do not control our independent manufacturers or licensing partners or their labor, product safety and other business practices. From time to time, our independent manufacturers may not comply with such standards or applicable local law or our licensees may not require their manufacturers to comply with such standards or applicable local law. The violation of such standards and laws by one of our independent manufacturers or by one of our licensing partners, or the divergence of a manufacturer's or a licensing partner's labor practices from those generally accepted as ethical in the United States, could harm our reputation, result in a product recall or require us to curtail our relationship with and locate a replacement for such manufacturer or licensee. We could also be the focus of adverse publicity and our reputation could be damaged. Any of these events could have a material adverse effect on our business, financial condition, results of operations and liquidity.
GLOBAL BUSINESS RISKS
Our global operations expose us to a variety of legal, regulatory, political and economic risks that may adversely impact our results of operations in certain regions.
As a result of our international operations, we are subject to risks associated with our operations in international markets as a result of a number of factors, many of which are beyond our control. These risks include, among other things:
•the challenge of managing broadly dispersed foreign operations;
•inflationary pressures and economic changes or volatility in foreign economies;
•the burdens of complying with the laws and regulations of both U.S. and foreign jurisdictions;
•additional or increased customs duties, tariffs, taxes and other charges on imports or exports;
•political corruption or instability;
•geopolitical regional conflicts, terrorist activity, political unrest, civil strife and acts of war;
•local business practices that do not conform to U.S. legal or ethical guidelines;
•anti-American sentiment in foreign countries in which we operate;
•delays in receipts of our products at our distribution centers due to labor unrest, increasing security requirements or other factors at U.S. or foreign ports;
•significant fluctuations in the value of the dollar against foreign currencies;
•increased difficulty in protecting our intellectual property in foreign jurisdictions;
•restrictions on the transfer of funds between the U.S. and foreign nations; and
•natural disasters or health epidemics in areas in which our businesses, customers, suppliers and licensees are located.
All of these factors could disrupt our operations or limit the countries in which we sell or source our products, significantly increase the cost of operating in or obtaining materials originating from certain countries, result in decreased revenues, and materially and adversely affect our product sales, financial condition and results of operations.
We are subject to the U.S. Foreign Corrupt Practices Act, which prohibits the payment of bribes to foreign officials to assist in obtaining or retaining business. We are also subject to anti-corruption laws of the foreign countries in which we operate. Although we have implemented policies and procedures that are designed to promote compliance with such laws, our employees, contractors and agents may take actions that violate our policies and procedures. Any such violation could result in sanctions or other penalties against us and have an adverse effect on our business, reputation and operating results.
Our business is exposed to foreign exchange rate fluctuations.
We make most of our purchases in U.S. dollars. However, we source substantially all of our products overseas, and as such, the cost of these products may be affected by changes in the value of the relevant currencies against the U.S. dollar. Changes in currency exchange rates may also affect the relative prices at which we and our foreign competitors sell products in the same market. We use forward foreign exchange contracts to hedge material exposure to adverse changes in foreign exchange rates. However, no hedging strategy can completely insulate us from foreign exchange risk. We are also exposed to gains and losses resulting from the effect that fluctuations in foreign currency exchange rates have on the reported results in our financial statements due to the translation of the operating results and financial position of our foreign subsidiaries. There can be no assurance that foreign currency fluctuations will not have a material adverse effect on our business, financial condition, results of operations and liquidity. See Item 7A “Quantitative and Qualitative Disclosures About Market Risk” below for additional information regarding our foreign exchange risk.
INFORMATION TECHNOLOGY RISKS
Disruption of our information technology systems and websites could adversely affect our financial results and our business reputation.
We are heavily dependent upon our information technology systems to record and process transactions and manage and operate all aspects of our business. We also have e-commerce websites for direct retail sales.
Given the nature of our business and the significant number of transactions in which we engage annually, it is essential that we maintain constant operation of our information technology systems and websites and that they operate effectively. We depend on our in-house information technology employees and third parties, including “cloud” service providers, to maintain and periodically update and upgrade our systems and websites to support the growth of our business. We also maintain off-site server data facilities that record and process information regarding our vendors and customers and their transactions with us. Our information technology systems and websites may, from time to time, be vulnerable to damage or interruption from events such as computer viruses, security breaches, power outages and difficulties in replacing or integrating the systems of acquired businesses. Any such problems or interruptions could result in loss of valuable business data, our customers' or employees' personal information, disruption of our operations and other adverse impacts to our business and require significant expenditures by us to remediate any such failure, problem or breach. In addition, we must comply with increasingly complex regulatory standards enacted to protect business and personal data and an inability to maintain compliance with these regulatory standards could subject us to legal risks and penalties. Although we maintain disaster recovery centers and insurance coverage aimed at addressing certain of these risks, there can be no assurance that insurance coverage will be available or that the amounts of coverage will be adequate to cover a specific loss.
Our business and reputation could be adversely affected if our computer systems or the systems of our business partners or service providers, become subject to a data security or privacy breach or other disruption from a third party.
In addition to our own confidential and proprietary business information, a routine part of our business includes the gathering, processing and retention of sensitive and confidential information pertaining to our customers, employees and others.
We, our business partners or our service providers may not have the resources or technical sophistication to anticipate or prevent the rapidly evolving and complex cyber-attacks being unleashed by increasingly sophisticated hackers and data thieves. As a result, our facilities and information technology systems, as well as those of our business partners and third-party service providers, may be vulnerable to cyber-attacks and breaches, acts of vandalism, ransomware, software viruses and other similar types of malicious activities. Any actual or threatened cyber-attack may cause us to incur unanticipated costs, including costs related to the hiring of additional computer experts, business interruption, engaging third-party cyber security consultants and upgrading our information security technologies. As a result of recent security breaches at a number of prominent companies, the media and public scrutiny of information security and privacy has become more intense and the regulatory environment has become more uncertain. Any compromise or breach of our information technology systems or those of our business partners or service providers that results in the misappropriation, loss or other unauthorized disclosure of a customer’s or other person’s private, confidential or proprietary information could result in:
•a loss of confidence in us by our customers and business partners;
•violate applicable privacy and other laws;
•expose us to litigation and significant potential liability; or
•require us to expend significant resources to remedy any such breach and redress any damages cause by such a breach.
We must also comply with increasingly rigorous regulatory standards for the protection of business and personal data enacted in the U.S., Europe and elsewhere. Some examples include the European Union’s General Data Protection Regulation (the “GDPR”), the California Consumer Privacy Act ("CCPA") and the California Privacy Rights Act ("CPRA"). These regulations impose additional obligations on companies concerning the handling of personal data and provides certain individual privacy rights to persons whose data is stored. Our compliance with existing, proposed and recently enacted laws (including implementation of the privacy and process enhancements required by these regulations) and regulations can be costly. Any failure by us to comply with these regulatory standards could subject us to significant legal financial and reputational harm.
INTELLECTUAL PROPERTY RISKS
Failure to adequately protect our trademarks and intellectual property rights, to prevent counterfeiting of our products or to defend claims against us related to our trademarks and intellectual property rights could reduce sales and adversely affect the value of our brands.
We believe that our trademarks and other proprietary rights are of major significance to our success and our competitive position, and we consider some of our trademarks, such as Steve Madden®, to be integral to our business and among our most valuable assets. Accordingly, we devote substantial resources to the establishment and protection of our trademarks on a worldwide basis. Nevertheless, policing unauthorized use of our intellectual property is difficult, expensive and time consuming and thereconsuming. There can be no assurance that the actions taken by uswe take to establish and protect our trademarks and other proprietary rights will be adequate to prevent imitation of our products by others or to prevent others from seeking to block sales of our products on the basis that our products violate the trademarks andor other proprietary rights of others. Moreover, no assurance can be given that others will not assert rights in, or ownership of, trademarks and other proprietary rights of ours or that we will be able to successfully resolve such conflicts. We could incur substantial costs in legal actions relating to our use of intellectual property or the use of our intellectual property by others. In addition, the laws of certain foreign countries may not protect proprietary rights to the same extent as do the laws of the United States. Our failure to establish and then protect such proprietary rights from unlawful and improper utilizationuse could have a material adverse effect on our business, financial condition, results of operations and liquidity.
A portion of our revenue is dependent on licensing our trademarks. The actions of our licensees or the loss of a significant licensee could diminish our brand integrity and adversely affect our revenue and results of operations.
Our Licensees’ Conduct Could Harm our Business.We license to others the rights to produce and market certain products that are sold under our trademarks. Although we retain significant control over our licensees’ products and advertising, we rely on our licensees forhave operational and financial control over their businesses. If the quality, image or distribution of our licensed products diminish, customer acceptance of and demand for our brands and products could decline. This could materially and adversely affect our business and results of operations. In fiscal year 2017,2022, approximately 76%60% of our net royalties were derived from our top five licensed product lines. A decrease in customer demand for any of these product lines could have a material adverse effect on our results of operations and financial condition. AlthoughFurthermore, if we believe that in most circumstances we could replace existing licensees if necessary, our inabilityare unable to do so effectivelyengage an adequate replacement for a terminated licensee or to engage such a replacement for anyan extended period, of time could adversely affect our revenues and results of operations.operations could be adversely affected.
GENERAL RISK FACTORS
Changes in economic conditions may adversely affect our financial condition, results of operations and liquidity.
Our opportunities for long-term growth and profitability are accompanied by significant challenges and risks, particularly in the near term. Specifically, our business is dependent on consumer demand for our products and the purchase of our products by consumers is largely discretionary. Consumer confidence and discretionary spending could be adversely affected in response to financial market volatility, negative financial news, increases in inflation and interest rates, conditions in the real estate and mortgage markets, declines in income or asset values, changes to fuel and other energy costs, labor and healthcare costs, food costs and other economic factors. A downturn in economic conditions leading to a reduction in consumer confidence and discretionary spending could have a negative effect on our sales and results of operations during the year ending December 31, 2023 and thereafter.
Litigation or other legal proceedings could divert management resources and Other Legal Proceedings. result in costs that adversely affect our operating results from quarter to quarter.
We are involved in various claims, litigationslitigation and other legal and regulatory proceedings and governmental investigations that arise from time to time in the ordinary course of our business. Due to the inherent uncertainties of litigation and such other proceedings and investigations, we cannot predict with accuracy the ultimate outcome of any such matters. An unfavorable outcome could have an adverse impact on our business, financial condition and results of operations, and the amount of insurance coverage we maintain to address such matters may be inadequate to cover these or otherthose claims. In addition, any significant litigation, investigation or proceeding, regardless of its merits, could divert financial and management resources that would otherwise be used to benefit our operations. See Item 3 “Legal Proceedings,” below for additional information regarding legal proceedings in which we are involved.
Declines in Our Stock Price Due to Inaccurate Predictions. The trading price of our common stock periodically may rise or fall based on the accuracy of predictions of our future performance. As one of our primary objectives, we strive to maximize the long-term strength, growth and profitability of our Company, rather than to achieve an earnings target in any particular fiscal quarter. We believe that this longer-term goal is in the best interests of the Company and our stockholders, but recognize that it may be helpfulsubject to our stockholders and potential investors for us to provide guidance as to our quarterly and annual forecast of net sales and earnings. Although we endeavor to provide meaningful and considered guidance at the time it is provided and generally expect to provide updates to our guidance when we report our results each fiscal quarter, actual results may differ from our predictions as the guidance is based on assumptions and expectations that may or may not come to pass and, as such, we assume no responsibility to update any of our forward-looking statements at such times or otherwise. If and when we announce actual results that differ from those that have been predicted by us, the market price of our common stock could be adversely
affected. Investors who rely on these predictions in making investment decisions with respect to our common stock do so at their own risk. We take no responsibility for any losses sufferedadditional tax liabilities as a result of suchaudits by various taxing authorities.
We are subject to the tax laws and regulations of numerous jurisdictions as a result of our international operations. These tax laws and regulations are highly complex and significant judgment and specialized expertise is required in evaluating and estimating our worldwide provision for income taxes. We are subject to audit by the taxing authorities in each jurisdiction where we conduct our business and any one of these jurisdictions may assess additional taxes against us as a result of an audit. The final determination with respect to any tax audits, and any related litigation, could be different from our estimates or from our historical tax provisions and accruals. The outcome of any audit or audit-related litigation could have a material adverse effect on our operating results or cash flows in the periods for which that determination is made and may require a restatement of prior financial reports. In addition, future period earnings may be adversely impacted by litigation costs, settlement payments or interest or penalty assessments.
Changes in tax laws could have an adverse effect upon our financial results.
We are subject to income taxation in various jurisdictions in the United States and numerous foreign jurisdictions. Tax laws and regulations, or their interpretation and application, in any jurisdiction are subject to significant changes. Legislation or other changes in the tax laws of the jurisdictions where we do business could increase our tax liability and adversely affect our after-tax profitability. Adjustments to the incremental provisional tax expense may be made in future periods as actual amounts may differ due to, among other factors, a change in interpretation of the U.S. tax code and related tax accounting guidance, changes in assumptions made in developing these estimates, regulatory guidance that may be issued with respect to the applicable revisions to the U.S. tax code and state tax implications.
Other jurisdictions are contemplating changes or have unpredictable enforcement activity. Increases in applicable tax rates, implementation of new taxes, changes in applicable tax laws and interpretations of these tax laws and actions by tax authorities in jurisdictions in which we operate could reduce our after-tax income and have an adverse effect on our results of operations.
Any failure to maintain effective internal control over our financial reporting could materially adversely affect us.
Section 404 of the Sarbanes-Oxley Act of 2002 requires us to include in our annual reports on Form 10-K an assessment by management of the effectiveness of our internal control over financial reporting. In particular, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002. Our compliance with Section 404 may require us to incur substantial accounting expense and expend significant management efforts. Our failure to maintain effective internal controls could result in a determination by our auditors that a material weakness or significant deficiency exists in our internal controls.
Such a determination could result in a loss of investor confidence in the reliability of our financial statements and could require us to restate our quarterly or annual financial statements. These factors could, in turn, negatively affect the price of our common stock.
In addition, at any given time outside securities analysts may follow our financial results and issue reports that discuss our historical financial results and the analysts' predictions of our future performance, which our stockholders and potential investors may choose to rely on in making investment decisions. These analysts' predictions are based upon their own opinions and are often different from our own forecasts. Our stock price could decline if our results are below the estimates or expectations of these outside analysts.
Exposure toForeign Currency Fluctuations. We make the majority of our purchases in U.S. dollars. However, we source substantially all of our products overseas and, as such, the cost of these products may be affected by changes in the value of the relevant currencies. Changes in currency exchange rates may also affect the relative prices at which we and our foreign competitors sell products in the same market. We use forward foreign exchange contracts to hedge material exposure to adverse changes in foreign exchange rates. However, no hedging strategy can completely insulate us from foreign exchange risk. We are also exposed to gains and losses resulting from the effect that fluctuations in foreign currency exchange rates have on the reported results in our financial statements due to the translation of operating results and financial position of our foreign subsidiaries. There can be no assurance that foreign currency fluctuations will not have a material adverse effect on our business, financial condition, results of operations and liquidity.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We lease space for our headquarters, our retail stores, showrooms, warehouses, storage and office facilities in various locations in the United States, as well as overseas. We ownAll of our locations are leased, with an exception of one improved real property parcel in Long Island City, New York.York, which we own. We believe that our existing facilities are in good operating condition and are adequate for our present level of operations. The following table sets forth information with respect to our key properties:
the location, use, segment, and size of the Company's principal properties as of December 31, 2022. |
| | | | | | | | | | |
| Location | Leased/OwnedUse | Primary UseSegment | Approximate Area Square Feet |
Dongguan, Guangdong Province, China | Leased | Offices and sample production | 166,800Wholesale Footwear |
154,900 |
Montreal, Canada | Leased | Offices, warehouse | 117,422 |
|
| Long Island City, NY | Leased | Executive offices and sample factory | 90,000Corporate(1) |
111,000 |
Peabody, MAMontreal, Canada | LeasedOffices, warehouse | Offices and warehouse, Schwartz & BenjaminWholesale Footwear | 80,424 |
105,800 |
Bayonne, NJ | Leased | Warehouse | 83,000 |
|
Bellevue, WA | Leased | Offices, Topline | 41,500 |
|
| New York, NY | Leased | Offices and showroom, Accessories | 30,000 |
|
New York, NY | Leased | Offices and showroom, Schwartz & Benjamin | 14,110Wholesale Footwear |
29,800 |
Putian City, Guangdong Province, China | Leased | Offices | 13,800 |
|
| New York, NY | Leased | Showroom | 13,401 |
|
Seattle, Washington | Leased | Offices and showroom, Dolce VitaAccessories | 10,537Wholesale Accessories/Apparel |
27,200 |
| New York, NY | Leased | Offices and showroom | 10,000Wholesale Footwear |
10,000 |
| Renton, WA | Topline office | Wholesale Footwear | 9,500 |
| Putian City, China | Offices | Wholesale Footwear | 8,700 |
| Long Island City, NY | LeasedStorage | StorageCorporate(1) | 7,200 |
|
Kowloon, Hong KongLeón, Mexico | LeasedOffices | OfficesWholesale Footwear | 4,800 |
6,400 |
| Mexico City, Mexico | Leased | Offices, SM Mexico | 3,520Wholesale Footwear and Wholesale Accessories/Apparel |
|
Los Angeles, CA | Leased | Showroom, Steven | 2,700 |
|
New York, NY | Leased | Offices | 2,700 |
|
Long Island City, NY | Owned | Other | 2,200 |
|
New York, NY | Leased | Apartments | 1,800 |
|
Bucharest, Romania | Leased | Offices, Customer Service | 1,722 |
|
New York, NY | Leased | Offices | 850 |
|
Dallas, Texas | Leased | Showroom | 800 |
5,700 |
(1)Corporate does not constitute a reportable segment.
In addition to the above properties, the Company occupies 232 leased retail and outlet store locations. These leases expire at various times through fiscal 2032. All of our retail stores are leased pursuant to leases that, under their original terms, extend for an average of tenfive years. Many of the leases contain rent escalation clauses to compensate for increases in operating costs and real estate taxes over the base year. The current terms of our retail store leases expire as follows:Refer to Item 1. "Business" for further information.
|
| | |
| Years Initial Lease Terms Expire | Number of Stores |
| 2018 | 18 |
|
| 2019 | 22 |
|
| 2020 | 24 |
|
| 2021 | 19 |
|
| 2022 | 28 |
|
| 2023 | 24 |
|
| 2024 | 19 |
|
| 2025 | 20 |
|
| 2026 | 16 |
|
| 2027 | 6 |
|
| 2028 | 3 |
|
| 2029 | 3 |
|
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of business, we have various pending cases involving contractual disputes, employee-related matters, distribution matters, product liability claims, trademarkintellectual property infringement and other matters. In the opinion of management, after consulting with legal counsel, the liabilities, if any, resulting from these legal proceedings should not have a material impact on our financial condition, results of operations or cash flows.liquidity.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
| |
ITEM 5 | ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
($ in thousands, except for holders of record, beneficial owners and per share data)
Market Information.Our shares of common stock haveis traded on the NASDAQ Global Select Market since August 1, 2007 under the trading symbol SHOO and werewas previously traded on the NASDAQ National Market prior to that date. The following table sets forth the range of high and low closing sales prices for our common stock during each fiscal quarter during the two-year period ended December 31, 2017 as reported by the NASDAQ Global Select Market. The trading volume of our securities fluctuates and may be limited during certain periods. As a result, the liquidity of an investment in our securities may be adversely affected.
|
| | | | | |
| | High | Low | | High | Low |
| 2017 | | | 2016 | | |
Quarter ended March 31, 2017 | $38.95 | $33.50 | Quarter ended March 31, 2016 | $38.48 | $27.80 |
Quarter ended June 30, 2017 | $40.75 | $35.55 | Quarter ended June 30, 2016 | $38.06 | $31.68 |
Quarter ended September 30, 2017 | $43.80 | $38.20 | Quarter ended September 30, 2016 | $36.97 | $32.69 |
Quarter ended December 31, 2017 | $47.55 | $37.25 | Quarter ended December 31, 2016 | $40.55 | $32.30 |
Holders.As of February 27, 2018,17, 2023, there were 152 holders of record and approximately 28,500 beneficial owners of our common stock.
Dividends. Historically, with the exception of a special cash dividend paid in each of November 2005 and November 2006, we have not declared or paid any cash dividends to our common stockholders Beginning in the past. Instead,first quarter of 2018, we have chosen to retain earnings, if any, for potential future dividends and to finance the development and expansion of our business.
In February 2018, the Board of Directors of the Company declaredbegan paying a quarterly cash dividend of $0.20 per share on the Company’sour outstanding shares of common stock. At the end of March 2020, in response to the COVID-19 pandemic, and as a precautionary measure, our Board of Directors temporarily suspended the payment of dividends. In February 2021, our Board of Directors approved the reinstatement of a quarterly cash dividend. A quarterly cash dividend of $0.21 per share on our outstanding shares of common stock was paid on March 25, 2022, June 24, 2022, September 26, 2022 and December 30, 2022. The aggregate cash dividend ispaid for the twelve months ended December 31, 2022 was $66,005. In February 2023, our Board of Directors approved the quarterly dividend of $0.21 per share payable on March 29, 2018,24, 2023 to stockholders of record as of the close of business on March 12, 2018.10, 2023. The Company currently expects to continue the practice of paying a cash dividend each quarter; however, the payment of future dividends will be subject to the discretion of our Board of Directors and will be contingent upon future earnings, if any, our financial condition, capital requirements, general business conditions and other factors. Therefore, we can give no assurance that cash dividends of any kind will be paid to holders of our common stock in the future.
Equity Compensation Plans. Information regarding our equity compensation plans as of December 31, 2017 is disclosed in Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”
Issuer Repurchases of Equity Securities. The Company'sOur Board of Directors authorized a share repurchase program (the "Share“Share Repurchase Program"Program”), effective as of January 1, 2004. The Share Repurchase Program permits the Company to effect repurchases of the Company's common stock 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. 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 most recently, on July 28, 2017, whenof our common stock. On April 24, 2019, the Board of Directors approved the continuationexpansion of the Company's Share Repurchase Program for an additional $200 millionup to $200,000 in repurchases of the Company's common stock.stock, which included the amount remaining under the prior authorization. On November 2, 2021, the Board of Directors approved an increase in the Company's share repurchase authorization of approximately $200,000, bringing the total authorization to $250,000, which included the amount remaining under the prior authorization. The Share Repurchase Program permits us 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 our best interest. In the middle of March 2020, in response to the COVID-19 pandemic, as a precautionary measure the Board of Directors temporarily suspended the repurchase of our common stock, which the Board of Directors reinstated on February 24, 2021. During fiscal year 2017,the twelve months ended December 31, 2022, we repurchased an aggregate of 2,253,8023,604 shares of the Company'sour common stock were repurchased under the Share Repurchase Program, at ana weighted average price per share price of $37.62,$35.84, for an aggregate purchase price of approximately $85 million. At$129,152, which includes the amount remaining under the prior authorization. As of December 31, 2017, an aggregate of2022, approximately $181 million$94,398 remained available for
future repurchases of our common stock under the Share Repurchase Program. The following table presents the total number of shares of the Company'sour common stock, $.0001$0.0001 par value, purchased by the Companyus in the three months ended December 31, 2017,2022, the average price paid per share, the amount of shares purchased pursuant to our Share Repurchase Program and the approximate dollar value of the shares that still could have been purchased at the end of the fiscal period pursuant to the Company'sour Share Repurchase Program. See Note J – Share Repurchase Program to the Consolidated Financial Statements for further details on our share repurchase program. During the three months ended December 31, 2022, there were no sales by us of unregistered shares of common stock.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands except for per share) | Total Number of Shares Purchased(1) | | Average Price Paid per Share(1) | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
| 10/1/2022 - 10/31/2022 | 6 | | | $ | 28.39 | | | — | | | | | $ | 116,122 | |
| 11/1/2022 - 11/30/2022 | 374 | | | $ | 33.00 | | | 373 | | | | | $ | 103,820 | |
| 12/1/2022 - 12/31/2022 | 744 | | $ | 32.61 | | | 281 | | | | $ | 94,398 | |
| Total | 1,124 | | $ | 32.71 | | | 654 | | | | |
|
| | | | | | | | | | | | | |
| Period | Total Number of Shares Purchased(1) | | Average Price Paid per Share(1) | | Total Number of Shares Purchased as part of Publicly Announced Plans or Programs | | Maximum Dollar Amount of Shares that May Yet Be Purchased Under the Plans or Programs |
| 10/1/2017 - 10/31/2017 | 20,982 |
| | $ | 42.91 |
| | 20,982 |
| | $ | 194,803 |
|
| 11/1/2017 - 11/30/2017 | 474,435 |
| | $ | 39.38 |
| | 334,571 |
| | $ | 193,902 |
|
| 12/1/2017 - 12/31/2017 | 143,745 |
| | $ | 45.94 |
| | — |
| | $ | 180,861 |
|
| Total | 639,162 |
| | $ | 40.97 |
| | 355,553 |
| | $ | 180,861 |
|
| | | | | |
| | |
(1)The Steven Madden, Ltd. 2019 Incentive Compensation Plan and its predecessor plan, the Steven Madden, Ltd. Amended and Restated 2006 Stock Incentive Plan, provides the Companyeach provide us with the right to deduct or withhold, or require employees to remit to the Company,us, an amount sufficient to satisfy any applicableall or part of the tax withholding obligations applicable to stock-based compensation awards. To the extent permitted, employeesparticipants may elect to satisfy all or part of such withholding obligations by tendering to the Companyus previously owned shares or by having the Companyus withhold shares having a fair market value equal to the minimum statutory tax withholdingtax-withholding rate that could be imposed on the transaction. Included in this table are shares withheld during the fourth quarter of 20172022 in connection with the settlement of vested restricted stock and exercises of stock options to satisfy tax withholdingtax-withholding requirements in addition to the shares repurchased pursuant to the Share Repurchase Program. Of the total number of shares repurchased by the Company in the fourth quarter of 2017, 283,609 shares were withheld at an average price per share of $43.17, forwith an aggregate purchase price of approximately $12,244, in connection with the settlement of vested restricted stock and exercises of stock options to satisfy tax withholding requirements. Excluding the shares withheld in connection with the settlement of vested restricted stock and exercises of stock options, the average price per share was $42.91 in October 2017, $38.98 in November 2017 and $39.21 in the period October 1, 2017 to December 31, 2017.$15,049.
Performance Graph.
The following graph compares the yearly percentage change in the cumulative total stockholder return on our common stock during the period beginning on December 31, 2012,2017, and ending on December 31, 2017,2022, with the cumulative total return on the Russell 2000 Index and a peer group index. In 2016, the Company decided to remove the S&P 500 Footwear Index and replace it with a peer group index of companies believed to be engaged in similar businesses, as we believe the composition of the new peer group is more representative of our current business. The peer group index consists of sixseven companies: Caleres, Inc., Crocs, Inc., Deckers Outdoor Corporation, Genesco Inc., Skechers U.S.A., Inc., Designer Brands Inc. and Wolverine World Wide, Inc.
The comparison assumes that $100 was invested on December 31, 20122017 in our common stock and in the foregoing indices and assumes the reinvestment of dividends.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 12/31/2017 | | 12/31/2018 | | 12/31/2019 | | 12/31/2020 | | 12/31/2021 | | 12/31/2022 |
| Steven Madden, Ltd. | $ | 100.00 | | | $ | 98.79 | | | $ | 142.67 | | | $ | 117.95 | | | $ | 157.42 | | | $ | 110.96 | |
| Russell 2000 Index | $ | 100.00 | | | $ | 88.99 | | | $ | 111.70 | | | $ | 134.00 | | | $ | 153.85 | | | $ | 122.41 | |
| Peer Group | $ | 100.00 | | | $ | 102.90 | | | $ | 134.41 | | | $ | 150.13 | | | $ | 210.40 | | | $ | 192.41 | |
|
| | | | | | | | | | | | | |
| | | | 12/31/2012 | | 12/31/2013 | | 12/31/2014 | | 12/31/2015 | | 12/31/2016 | | 12/31/2017 |
| Steven Madden, Ltd. | $100.00 | | $129.84 | | $112.95 | | $107.24 | | $126.86 | | $165.72 |
| Russell 2000 Index | $100.00 | | $138.82 | | $145.62 | | $139.19 | | $168.85 | | $193.58 |
| Peer Group | $100.00 | | $159.77 | | $171.29 | | $146.88 | | $148.44 | | $198.83 |
ITEM 6. SELECTED FINANCIAL DATA[RESERVED]
The following selected financial data has been derived from our audited consolidated financial statements. The Income Statement Data relating to 2017, 2016 and 2015, and the Balance Sheet data as of December 31, 2017 and 2016 should be read in conjunction with the information provided in Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” and the notes to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.
|
| | | | | | | | | | | | | | | |
| | INCOME STATEMENT DATA Year Ended December 31, (in thousands, except per share data) |
| | 2017 | 2016 | 2015 | 2014 | 2013 |
| Net sales | $ | 1,546,098 |
| $ | 1,399,551 |
| $ | 1,405,239 |
| $ | 1,334,951 |
| $ | 1,314,223 |
|
| Cost of sales | 968,357 |
| 877,568 |
| 904,747 |
| 865,951 |
| 831,847 |
|
| Gross profit | 577,741 |
| 521,983 |
| 500,492 |
| 469,000 |
| 482,376 |
|
| Commissions and licensing fee income - net | 14,259 |
| 11,788 |
| 16,565 |
| 13,723 |
| 15,632 |
|
| Operating expenses | (421,216 | ) | (364,595 | ) | (342,364 | ) | (315,081 | ) | (295,223 | ) |
| Impairment charges | (1,000 | ) | — |
| (3,045 | ) | — |
| (983 | ) |
| Income from operations | 169,784 |
| 169,176 |
| 171,648 |
| 167,642 |
| 203,768 |
|
| Interest income - net | 2,548 |
| 2,488 |
| 2,191 |
| 3,074 |
| 4,100 |
|
| Other income (expense) - net | (5 | ) | (664 | ) | (1,373 | ) | 677 |
| 1,083 |
|
| Income before provision for income taxes | 172,327 |
| 171,000 |
| 172,466 |
| 171,393 |
| 208,951 |
|
| Provision for income taxes | 53,189 |
| 49,726 |
| 58,811 |
| 58,764 |
| 75,666 |
|
| Net income | 119,138 |
| 121,274 |
| 113,655 |
| 112,629 |
| 133,285 |
|
| Net (income) attributable to non-controlling interests | (1,190 | ) | (363 | ) | (717 | ) | (749 | ) | (1,278 | ) |
| Net income attributable to Steven Madden, Ltd. | $ | 117,948 |
| $ | 120,911 |
| $ | 112,938 |
| $ | 111,880 |
| $ | 132,007 |
|
| Basic income per share | $2.14 | $2.12 | $1.91 | $1.82 | $2.04 |
| Diluted income per share | $2.04 | $2.03 | $1.85 | $1.76 | $1.98 |
| Basic weighted average shares of common stock | 55,157 |
| 57,109 |
| 58,997 |
| 61,451 |
| 64,583 |
|
| Effect of dilutive securities - options and restricted stock | 2,673 |
| 2,447 |
| 2,145 |
| 2,225 |
| 2,253 |
|
| Diluted weighted average shares of common stock outstanding | 57,830 |
| 59,556 |
| 61,142 |
| 63,676 |
| 66,836 |
|
|
| | | | | | | | | | | | | | | |
| | BALANCE SHEET DATA At December 31, |
| | 2017 | 2016 | 2015 | 2014 | 2013 |
| Total assets | $ | 1,057,161 |
| $ | 960,875 |
| $ | 914,385 |
| $ | 911,235 |
| $ | 880,241 |
|
| Working capital | 438,906 |
| 345,544 |
| 284,178 |
| 264,635 |
| 342,142 |
|
| Noncurrent liabilities | 41,617 |
| 36,676 |
| 60,923 |
| 64,115 |
| 46,898 |
|
| Stockholders' equity | $ | 808,932 |
| $ | 741,072 |
| $ | 678,663 |
| $ | 669,529 |
| $ | 678,840 |
|
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion of our Financial Conditionfinancial condition and Resultsresults of Operationsoperations should be read in conjunction with our audited consolidated financial statements and notes thereto appearing elsewhere in this Annual Report on Form 10-K.
Overview: Overview
($ in thousands, except for retail sales data per square foot, earnings per share and per share data)
Steven Madden, Ltd. and its subsidiaries (collectively, the “Company”, "we", "our", "us", as applicable) design, source, market and sellmarket fashion-forward branded and private label footwear, accessories and apparel for women, men, and children. In addition, we design, source, market and sell name brand and private label fashion handbags and accessories, through our Accessories Division. We market and selldistribute our products in the wholesale channel through better department stores, major department stores, mid-tier department stores, specialty stores, luxurymass merchants, off-price retailers, value pricedshoe chains, online retailers, national chains, mass merchants, onlinespecialty retailers, independent stores, and catalog retailersclubs throughout the United States, Canada, Mexico, and Europe, and other international markets through our joint ventures in Israel, South Africa, China, Taiwan, Malaysia, and the Middle East along with special distribution arrangements in certain European nations, including Albania, Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Hungary, Ireland, Kosovo, Latvia, Lithuania, Luxembourg, the Netherlands, Norway, Poland, Romania, Russia, Slovakia, Slovenia, Swedencountries, North Africa, South and Switzerland,Central America, Australia, and Tunisia.various countries in Asia. In addition, our products are marketeddistributed through our retail stores and our e-commerce websitesdirect-to-consumer channel within the United States, Canada, Mexico, and Europe, and our joint ventures in Israel, South Africa, China, and Taiwan, and under special distribution arrangements in Asia, Europe (excluding the aforementioned nations), India, the Middle East, South and Central America and New Zealand. East.
Our product line includeslines include a broad range of contemporary styles designed to establish or capitalize on market trends, complemented by core product offerings. We have established a reputation for design creativity and our ability to offer quality, trend-right products in popular styles at accessible price points, delivered in an efficient manner and time frame.
Our business is comprised ofcomprises five distinct segments (Wholesalesegments: Wholesale Footwear, Wholesale Accessories, Retail,Accessories/Apparel, Direct-to-Consumer, First Cost, and Licensing).Licensing. Our Wholesale Footwear segment includesdesigns, 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 following brands: Steve Madden Women's®, Madden Girl®, Steve Madden Men's®, Madden®, Madden NYC, Report®, Dolce Vita®, DV by Dolce Vita®, Mad Love®, Steven by Steve Madden®, Superga® (under license), Betsey Johnson®, Betseyville®, Steve Madden Kids®, FREEBIRD by Steven®, Stevies®, B Brian Atwood®, Blondo®, Kate Spade® (under license), Avec Les Filles® (under license), Alice & Olivia® (through aUnited States, Canada, Mexico, and Europe, and through our joint venture),ventures and includes our International business and certain private label footwear business. The agreement with Alice & Olivia® was terminated on December 31, 2017.international distributor network. Our Wholesale AccessoriesAccessories/Apparel segment includes Big Buddha®, Madden NYC, Betsey Johnson®, Steve Madden®, Steven by Steve Madden®, Madden Girl®, Luv Betsey®, DKNY® (under license), Donna Karan® (under license),designs, sources, and Cejon® accessoriesmarkets our brands and includessells our International businessproducts to department stores, mass merchants, off-price retailers, online retailers, specialty retailers, independent stores and certain private label accessories business. Steven Maddenclubs throughout the United States, Canada, Mexico, and Europe and through our joint ventures and international distributor network. Our Direct-to-Consumer segment, which was referred to as the Retail Inc., our wholly-owned retail subsidiary, operatessegment in previous filings, consists of Steve Madden Steven, Superga® and InternationalDolce Vita® full-price retail stores, Steve Madden® outlet stores, and our directly-operated digital e-commerce websites. Our retail stores are located in regional malls and shopping centers, as well as Steve Madden, Superga, Betsey Johnsonhigh streets in major cities across the United States, Canada, Mexico, Israel, South Africa, Taiwan, China, and Dolce Vita e-commerce websites and comprises our Retail segment. Thethe Middle East. Our First Cost segment represents commission based activities of a subsidiary that earns commissions for servingwhere the Company serves as a buying agent for footwear products under private labels for many of the country's large mass-market merchandisers, shoeselect national chains, and other value pricedvalue-priced retailers. Our Licensing segment is engaged in the licensing of the Steve Madden®, Steven by Steve Madden®Madden® and Madden Girl®Betsey Johnson® trademarks for use in connection with the manufacture, marketing and sale of outerwear, hosiery, jewelry, watches, sunglasses, hair accessories, umbrellas, bedding, luggageselect apparel, accessory, and men’s leather accessories. We license the Stevies® trademark for use in connection with the manufacture, marketing and sale of outerwear exclusively to Target. In addition, we license our Betsey Johnson® trademark for use in connection with the manufacture, marketing and sale of women's and children’s apparel, hosiery, swimwear, fragrance and beauty, sleepwear, activewear, jewelry, watches, bedding, luggage, stationary, umbrellas and household goods. We also license our Dolce Vita® trademark for use in connection with the manufacture, marketing and sale of women's and children's apparel.
On January 30, 2017, the Company entered into an equity purchase agreement (the “Purchase Agreement”) with Schwartz & Benjamin, Inc., a New York corporation (“S&A”), its affiliated companies B.D.S., Inc., a Delaware corporation (“B.D.S.”), Quinby Ridge Enterprises LLC, a Delaware limited liability company (“QRE”), and DANIELBARBARA Enterprises LLC, a New York limited liability company (“DBE” and, collectively with S&A, B.D.S. and QRE, “Schwartz & Benjamin”), the owners of all of the issued and outstanding equity interests in Schwartz & Benjamin (the “Sellers”), and Daniel Schwartz, as designated agent for the Sellers, pursuant to which the Company purchased all of the outstanding equity interests in Schwartz & Benjamin from the Sellers. The total purchase price for the acquisition was approximately $37,112, which included a cash payment at closing of $17,396 less a working capital adjustment of $901, plus potential earn-out payments based on the achievement of certain earnings targets for each of the twelve month periods ending on January 31, 2018 through 2023, inclusive. The fair value of the contingent payments was estimated using the present value of the payments based on management's projections of the financial results of Schwartz & Benjamin during the earn-out period and was finalized at $20,617. On November 27, 2017, the Company entered into an amendment to the Purchase Agreement with the sellers of Schwartz & Benjamin to change the manner of calculating the earn-
out and to provide for payments based on the performance of certain specified license agreements. In connection with this amendment, the Company reduced the earn-out liability from $20,617 to $10,000 and recorded a credit to operating expenses in the amount of $10,617. At December 31, 2017, the Company estimated the fair value of the contingent consideration to be approximately $10,000. Schwartz & Benjamin, which was founded in 1923, engages in the design, sourcing and sale of licensed and private label footwear and distributes its fashion footwear to wholesale customers, including better department stores and specialty boutiques,home categories as well as the retail stores of its brand partners.
In 2017, the Company formedvarious other non-core products. Corporate does not constitute a joint venture ("SM Taiwan") with Dolce Limited through its subsidiary, SM Dolce Limited. The Company is the majority interest holder in SM Taiwanreportable segment and controls all of the significant participating rights of the joint venture. SM Taiwan is the exclusive distributor of the Company's products in Taiwan. Additionally in 2017, the Company formed a joint venture ("SM China") with Xuzhou C. Banner Footwear, Ltd. through its subsidiary, SM (Jiangsu) Co., Ltd. The Company controls all of the significant participating rights of the joint venture. SM China is the exclusive distributor of the Company's products in China.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act made significant changesincludes costs not directly attributable to the Internal Revenue Code of 1986, as amended, including, but not limitedsegments. These costs are primarily related to reducing the U.S.expenses associated with corporate statutory tax rate, eliminating or limiting deduction of several expenses which were previously deductible, requiring a minimum tax on earnings generated by foreign subsidiaries, imposing a mandatory deemed repatriation tax on undistributed historic earnings of foreign subsidiariesexecutives, corporate finance, legal, human resources, information technology, cyber security, corporate social responsibility, and permitting a tax-free repatriation of foreign earnings through a dividends received deduction. The Tax Act could have a significant impact on our effective tax rate, net deferred tax assets and cash tax expenses. We are currently evaluating the overall impact of the Tax Act on our effective tax rate and balance sheet, but expect that the impact may be significant for our fiscal year 2018 and future periods. See additional information regarding the impact of the Tax Act below in this Item and in Note M Income Taxes to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.other shared services.
Dividends
Additionally, in February 2018, theOur Board of Directors of the Company declaredapproved a quarterly cash dividend of $0.20$0.21 per share on the Company’sour outstanding shares of common stock as partwhich was paid on March 25, 2022, June 24, 2022, September 26, 2022 and December 30, 2022. The aggregate cash dividends paid for the twelve months ended December 31, 2022 was $66,005.
On February 22, 2023, our Board of its cash deployment strategy to drive shareholder value or enhance shareholder returns. TheDirectors approved a quarterly dividend of $0.21 per share is payable on March 29, 2018,24, 2023 to stockholders of record as of the close of business on March 12, 2018.10, 2023.
Executive Summary
Recent Developments
During fiscal year 2022, the Company formed a joint venture ("AG SM Holdings Limited") with Apparel FZCO through its subsidiary, Madden Asia Holding Limited. The Company currently expects to continuecontrols all the practicesignificant participating rights of paying a cash dividend each quarter; however, the paymentjoint venture and is the majority interest holder in AG SM Holdings Limited. AG SM Holdings Limited is the exclusive distributor of future dividends will be subject to the discretion of our Board of Directors and will be contingent upon future earnings, if any, our financial condition, capital requirements, general business conditions and other factors. Therefore, we can give no assurance that cash dividends of any kind will be paid to holders of our common stockCompany’s products in the future.
Middle East. For additional information on these acquisitions, refer to Note D – Acquisitions & Sale of Minority Noncontrolling Interest in the Notes to our consolidated financial statements included in this Annual Report.
Key Performance IndicatorsHighlights
Total revenue for 2022 increased by 13.7% to $2,122,009 from $1,866,142 in 2021. Net income attributable to Steven Madden, Ltd. was $216,061 in 2022 compared to $190,678 in 2021. Our effective tax rate for 2022 increased to 23.1% compared to 20.5% in 2021. Diluted earnings per share in 2022 was $2.77 per share on 78,069 diluted weighted average shares outstanding compared to diluted income of $2.34 per share on 81,628 diluted weighted average shares outstanding in the prior year.
As of December 31, 2022, we had 232 brick-and-mortar retail stores and Statisticssix e-commerce websites in operation, compared to 214 brick-and-mortar retail stores and six e-commerce websites as of December 31, 2021. This increase resulted from the opening of 28 brick-and-mortar stores, including 12 stores that were acquired through our joint venture in the Middle East, partially offset by the closure of 10 brick-and-mortar stores. The Company also operated 20 concessions in international markets.
The following measurements are among the key business indicators reviewed by various members of management to measure consolidated and segment results of the Company:
net sales
gross profit margin
operating expenses
income from operations
adjusted EBITDA
adjusted EBIT
same store sales
Our inventory turnover
(calculated on a trailing four quarter average) for the years ended December 31, 2022 and 2021 was 4.9 times and 6.4 times, respectively. Our total Company accounts receivable average collection days were 72 days in 2022 compared to 67 days in 2021. As of December 31, 2022, we had $289,798 in cash, cash equivalents and short-term investments, no debt and total stockholders’ equity of $843,863. Working capital increased to $522,649 as of December 31, 2022, compared to $509,470 on December 31, 2021.
cash flowAs we look ahead, we remain focused on delivering trend-right product, deepening connections with our consumers, enhancing our digital commerce business, expanding our non-footwear categories, growing our international business and liquidity determined byefficiently managing our inventory and expenses while continuing to make meaningful progress on our corporate social responsibility initiatives.
COVID-19
The COVID-19 pandemic has negatively impacted the Company’s working capitalglobal economy, disrupted consumer spending and free cash flowglobal supply chains, and created significant volatility and disruption of financial markets. Beginning in March 2020, stores have experienced temporary closures, and we implemented precautionary measures in line with guidance from local authorities when stores reopened. The COVID-19 pandemic, and post pandemic recovery, have also significantly impacted our supply chain. In particular, we have experienced disruptions and delays in shipments, increases in shipping costs and increases in the pricing of certain components of our products. The receipt of inventory sourced from impacted areas has been slowed or disrupted and our manufacturers have also faced similar challenges in receiving raw materials and fulfilling our orders.
store metrics, such as sales per square foot, average unit retail, conversion, average units per transaction,
RESULTS OF OPERATIONS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in thousands, except for number of stores) | | 2022 | | 2021 | | 2020 |
| CONSOLIDATED: | | | | | | | | | | | | |
| Net sales | | $ | 2,111,296 | | | 99.5 | % | | $ | 1,853,902 | | | 99.3 | % | | $ | 1,188,943 | | | 98.9 | % |
| Commission and licensing fee income | | 10,713 | | | 0.5 | % | | 12,240 | | | 0.7 | % | | 12,871 | | | 1.1 | % |
| Total revenue | | 2,122,009 | | | 100.0 | % | | 1,866,142 | | | 100.0 | % | | 1,201,814 | | | 100.0 | % |
| Cost of sales (exclusive of depreciation and amortization) | | 1,248,173 | | | 58.8 | % | | 1,098,645 | | | 58.9 | % | | 737,273 | | | 61.3 | % |
| Gross profit | | 873,836 | | | 41.2 | % | | 767,497 | | | 41.1 | % | | 464,541 | | | 38.7 | % |
| Operating expenses | | 592,192 | | | 27.9 | % | | 519,848 | | | 27.9 | % | | 414,978 | | | 34.5 | % |
| Impairment of intangibles | | — | | | — | % | | 2,620 | | | 0.1 | % | | 44,273 | | | 3.7 | % |
| Impairment of lease right-of-use asset and fixed assets | | — | | | — | % | | 1,432 | | | 0.1 | % | | 36,895 | | | 3.1 | % |
| Income/(loss) from operations | | 281,644 | | | 13.3 | % | | 243,597 | | | 13.1 | % | | (31,605) | | | (2.6) | % |
| Interest and other income/(expense) – net | | 676 | | | — | % | | (1,529) | | | (0.1) | % | | 1,620 | | | 0.1 | % |
| Income/(loss) before income taxes | | 282,320 | | | 13.3 | % | | 242,068 | | | 13.0 | % | | (29,985) | | | (2.5) | % |
| Net income/(loss) attributable to Steven Madden, Ltd. | | $ | 216,061 | | | 10.2 | % | | $ | 190,678 | | | 10.2 | % | | $ | (18,397) | | | (1.5) | % |
| | | | | | | | | | | | |
| BY SEGMENT: | | | | | | | | | | | | |
| WHOLESALE FOOTWEAR SEGMENT: | | | | | | | | | | | | |
| Net sales | | $ | 1,194,890 | | | 100.0 | % | | $ | 1,022,322 | | | 100.0 | % | | $ | 713,662 | | | 100.0 | % |
| Cost of sales (exclusive of depreciation and amortization) | | 763,809 | | | 63.9 | % | | 677,155 | | | 66.2 | % | | 487,105 | | | 68.3 | % |
| Gross profit | | 431,081 | | | 36.1 | % | | 345,167 | | | 33.8 | % | | 226,557 | | | 31.7 | % |
| Operating expenses | | 166,123 | | | 13.9 | % | | 128,004 | | | 12.5 | % | | 118,325 | | | 16.6 | % |
| Impairment of intangibles | | — | | | — | % | | — | | | — | % | | 16,345 | | | 2.3 | % |
| Income from operations | | $ | 264,958 | | | 22.2 | % | | $ | 217,163 | | | 21.2 | % | | $ | 91,887 | | | 12.9 | % |
| | | | | | | | | | | | |
| WHOLESALE ACCESSORIES/APPAREL SEGMENT: | | | | | | | | | | | | |
| Net sales | | $ | 394,676 | | | 100.0 | % | | $ | 343,675 | | | 100.0 | % | | $ | 235,892 | | | 100.0 | % |
| Cost of sales (exclusive of depreciation and amortization) | | 294,591 | | | 74.6 | % | | 249,000 | | | 72.5 | % | | 164,984 | | | 69.9 | % |
| Gross profit | | 100,085 | | | 25.4 | % | | 94,675 | | | 27.5 | % | | 70,908 | | | 30.1 | % |
| Operating expenses | | 70,310 | | | 17.8 | % | | 64,776 | | | 18.8 | % | | 45,889 | | | 19.5 | % |
| Impairment of intangibles | | — | | | — | % | | 2,620 | | | 0.8 | % | | 27,472 | | | 11.6 | % |
| Impairment of lease right-of-use asset and fixed assets | | — | | | — | % | | 651 | | | 0.2 | % | | — | | | — | % |
| Income/(loss) from operations | | $ | 29,775 | | | 7.5 | % | | $ | 26,628 | | | 7.7 | % | | $ | (2,453) | | | (1.0) | % |
| | | | | | | | | | | | |
| DIRECT-TO-CONSUMER SEGMENT: | | | | | | | | | | | | |
| Net sales | | $ | 521,729 | | | 100.0 | % | | $ | 487,906 | | | 100.0 | % | | $ | 239,389 | | | 100.0 | % |
| Cost of sales (exclusive of depreciation and amortization) | | 189,773 | | | 36.4 | % | | 172,490 | | | 35.4 | % | | 85,184 | | | 35.6 | % |
| Gross profit | | 331,956 | | | 63.6 | % | | 315,416 | | | 64.6 | % | | 154,205 | | | 64.4 | % |
| Operating expenses | | 264,307 | | | 50.7 | % | | 240,093 | | | 49.2 | % | | 175,743 | | | 73.4 | % |
| Impairment of intangibles | | — | | | — | % | | — | | | — | % | | 456 | | | 0.2 | % |
| Impairment of lease right-of-use asset and fixed assets | | — | | | — | % | | 781 | | | 0.2 | % | | 36,895 | | | 15.4 | % |
| Income from operations | | $ | 67,649 | | | 13.0 | % | | $ | 74,542 | | | 15.3 | % | | $ | (58,889) | | | (24.6) | % |
| Number of stores | | 238 | | | | 220 | | | | 218 | | |
| | | | | | | | | | | | |
| FIRST COST SEGMENT: | | | | | | | | | | | | |
| Commission fee income | | $ | 916 | | | 100.0 | % | | $ | 2,346 | | | 100.0 | % | | $ | 3,902 | | | 100.0 | % |
| Gross profit | | 916 | | | 100.0 | % | | 2,346 | | | 100.0 | % | | 3,902 | | | 100.0 | % |
| Operating expenses | | 150 | | | 16.4 | % | | 375 | | | 16.0 | % | | 1,308 | | | 33.5 | % |
| Income from operations | | $ | 766 | | | 83.6 | % | | $ | 1,971 | | | 84.0 | % | | $ | 2,594 | | | 66.5 | % |
| | | | | | | | | | | | |
| LICENSING SEGMENT: | | | | | | | | | | | | |
| Licensing fee income | | $ | 9,798 | | | 100.0 | % | | $ | 9,893 | | | 100.0 | % | | $ | 8,969 | | | 100.0 | % |
| Gross profit | | 9,798 | | | 100.0 | % | | 9,893 | | | 100.0 | % | | 8,969 | | | 100.0 | % |
| Operating expenses | | 1,944 | | | 19.8 | % | | 1,785 | | | 18.0 | % | | 3,141 | | | 35.0 | % |
| Income from operations | | $ | 7,854 | | | 80.2 | % | | $ | 8,108 | | | 82.0 | % | | $ | 5,828 | | | 65.0 | % |
| | | | | | | | | | | | |
| CORPORATE: | | | | | | | | | | | | |
| Operating expenses | | $ | (89,358) | | | — | % | | $ | (84,815) | | | — | % | | $ | (70,752) | | | — | % |
| Loss from operations | | $ | (89,358) | | | — | % | | $ | (84,815) | | | — | % | | $ | (70,572) | | | — | % |
The following section discusses our results of operations for 2022 and contribution margin.
While2021 and year-to-year comparisons between those periods. Discussions of 2020 and year-to-year comparisons between 2021 and 2020 are not all of these metrics are disclosed due to the proprietary nature of the information, many of these metrics are disclosed and discussedincluded in this Management’sAnnual Report on Form 10-K and can be found within Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Non-GAAP Financial Measures
The Company reports its financial results in accordance with GAAP. The Company also uses adjusted earnings before interest and taxes ("Adjusted EBIT") and adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted
EBITDA"), which are derived from our consolidated financial information but are not presentedOperations” in our consolidated financial statements and are considered non-GAAP financial measures, in internal management reporting and planning processes as well as in evaluating2021 Annual Report on Form 10-K filed with the performance of the Company. Management believes these measures are useful to investors in evaluating the Company’s ongoing operating and financial results. By providing these non-GAAP measures, as a supplement to GAAP information, we believe we are enhancing investors’ understanding of our business and our results of operations. The non-GAAP financial measures are limited in their usefulness and should be considered in addition to, and not in lieu of, U.S. GAAP financial measures. Further, these non-GAAP measures may be unique to the Company, as they may be different from non-GAAP measures used by other companies.SEC on March 1, 2022.
The table below reconciles these metrics to net income as presented in the consolidated statement of income.
|
| | | | | | | | | | | | |
| | | Years Ended December 31 ($ in thousands) |
| | | 2017 | | 2016 | | 2015 |
| Net Income | | $ | 119,138 |
| | $ | 121,274 |
| | $ | 113,655 |
|
| Add back: | | | | | | |
| Provision for income taxes | | 53,189 |
| | 49,726 |
| | 58,811 |
|
| Provision for legal and early lease termination charges (benefit) | | 11,836 |
| | — |
| | (3,048 | ) |
| Schwartz & Benjamin amendment to the equity purchase agreement | | (10,215 | ) | | — |
| | — |
|
| Bad debt expense related to the Payless ShoeSource bankruptcy | | 5,470 |
| | — |
| | — |
|
| Schwartz & Benjamin acquisition integration charges | | 3,639 |
| | — |
| | — |
|
| Charges related to preferred interest investment | | 2,700 |
| | — |
| | — |
|
| Impairment of Wild Pair trademark | | 1,000 |
| | — |
| | 3,045 |
|
| Schwartz & Benjamin acquisition inventory fair value adjustment | | 591 |
| | — |
| | — |
|
| Deduct: | | | | | | |
| Other Income (expense) - net * | | (5 | ) | | (664 | ) | | (1,373 | ) |
| Interest, net | | 2,548 |
| | 2,488 |
| | 2,191 |
|
| Adjusted EBIT | | $ | 184,805 |
| | $ | 169,176 |
| | $ | 171,645 |
|
| Add back: | | | | | | |
| Depreciation and amortization | | $ | 20,406 |
| | $ | 19,868 |
| | $ | 19,382 |
|
| Loss on disposal of fixed assets | | 1,455 |
| | 652 |
| | 1,780 |
|
| Adjusted EBITDA | | $ | 206,666 |
| | $ | 189,696 |
| | $ | 192,807 |
|
| * Consists of realized (losses) gains on marketable securities and foreign exchange (losses) gains. |
Executive Summary
Net sales for 2017 increased by 10.5% to $1,546,098 from $1,399,551 in 2016. Net sales growth was driven by our acquisition of Schwartz & Benjamin, which contributed net sales of $80,020, as well as growth in our core business. Net income attributable to Steven Madden, Ltd. decreased 2.5% to $117,948 in 2017 compared to $120,911 in 2016. The Company's effective tax rate for 2017 increased to 30.9% compared to 29.1% recorded in 2016. Diluted earnings per share in 2017 increased to $2.04 per share on 57,830,000 diluted weighted average shares outstanding compared to $2.03 per share on 59,556,000 diluted weighted average shares outstanding in the prior year.
In our Retail segment, same store sales (sales attributable to those stores, including the e-commerce websites, that were in operation throughout 2017 and 2016) decreased 3.2%, and sales per square foot decreased to $656 in 2017 compared to sales per square foot of $707 in 2016. As of December 31, 2017, we had 206 stores in operation, compared to 189 stores as of December 31, 2016 which increase resulted from the opening of 13 full price stores and six outlet store locations partially offset by the closing of two full price stores.
Our total inventory turnover was 8.6 times compared to 8.2 times in the comparable period of last year. Our accounts receivable average collection days were 75 days in 2017 compared to 66 days in 2016 primarily due to changes in payment terms with certain customers. As of December 31, 2017, we had $274,764 in cash, cash equivalents and marketable securities, no short
or long-term debt and total stockholders’ equity of $808,932. Working capital increased to $438,906 as of December 31, 2017, compared to $345,544 on December 31, 2016.
The following table sets forth information on operations for the periods indicated:
|
| | | | | | | | | | | | | | | | | | | | | |
| | | Years Ended December 31
($ in thousands) |
| | | 2017 | | 2016 | | 2015 |
| CONSOLIDATED: | | | | | | |
| | |
| | |
| | |
|
| Net sales | | $ | 1,546,098 |
| | 100.0 | % | | $ | 1,399,551 |
| | 100.0 | % | | $ | 1,405,239 |
| | 100.0 | % |
| Cost of sales | | 968,357 |
| | 62.6 | % | | 877,568 |
| | 62.7 | % | | 904,747 |
| | 64.4 | % |
| Gross profit | | 577,741 |
| | 37.4 | % | | 521,983 |
| | 37.3 | % | | 500,492 |
| | 35.6 | % |
| Other operating income – net of expenses | | 14,259 |
| | 0.9 | % | | 11,788 |
| | 0.8 | % | | 16,565 |
| | 1.2 | % |
| Operating expenses | | 421,216 |
| | 27.2 | % | | 364,595 |
| | 26.1 | % | | 342,364 |
| | 24.4 | % |
| Impairment charges | | (1,000 | ) | | (0.1 | )% | | — |
| | — | % | | (3,045 | ) | | (0.2 | )% |
| Income from operations | | 169,784 |
| | 11.0 | % | | 169,176 |
| | 12.1 | % | | 171,648 |
| | 12.2 | % |
| Interest and other income – net | | 2,543 |
| | 0.2 | % | | 1,824 |
| | 0.1 | % | | 818 |
| | 0.1 | % |
| Income before income taxes | | 172,327 |
| | 11.1 | % | | 171,000 |
| | 12.2 | % | | 172,466 |
| | 12.3 | % |
| Net income attributable to Steven Madden, Ltd. | | 117,948 |
| | 7.6 | % | | 120,911 |
| | 8.6 | % | | 112,938 |
| | 8.0 | % |
| | | | | | | | | | | | | |
| By Segment: | | | | | | |
| | |
| | |
| | |
|
| WHOLESALE FOOTWEAR SEGMENT: | | | | | | |
| | |
| | |
| | |
|
| Net sales | | $ | 1,017,557 |
| | 100.0 | % | | $ | 881,864 |
| | 100.0 | % | | $ | 898,363 |
| | 100.0 | % |
| Cost of sales | | 685,190 |
| | 67.3 | % | | 602,029 |
| | 68.3 | % | | 632,541 |
| | 70.4 | % |
| Gross profit | | 332,367 |
| | 32.7 | % | | 279,835 |
| | 31.7 | % | | 265,822 |
| | 29.6 | % |
| Operating expenses | | 197,722 |
| | 19.4 | % | | 169,796 |
| | 19.3 | % | | 157,941 |
| | 17.6 | % |
| Income from operations - before impairment charges | | 134,645 |
| | 13.2 | % | | 110,039 |
| | 12.5 | % | | 107,881 |
| | 12.0 | % |
| | | | | | | | | | | | | |
| WHOLESALE ACCESSORIES SEGMENT: | | | | | | |
| | |
| | |
| | |
|
| Net sales | | $ | 256,295 |
| | 100.0 | % | | $ | 254,931 |
| | 100.0 | % | | $ | 266,564 |
| | 100.0 | % |
| Cost of sales | | 175,566 |
| | 68.5 | % | | 170,509 |
| | 66.9 | % | | 178,203 |
| | 66.9 | % |
| Gross profit | | 80,729 |
| | 31.5 | % | | 84,422 |
| | 33.1 | % | | 88,361 |
| | 33.1 | % |
| Operating expenses | | 57,092 |
| | 22.3 | % | | 52,860 |
| | 20.7 | % | | 55,749 |
| | 20.9 | % |
| Income from operations - before impairment charges | | 23,637 |
| | 9.2 | % | | 31,562 |
| | 12.4 | % | | 32,612 |
| | 12.2 | % |
| | | | | | | | | | | | | |
| RETAIL SEGMENT: | | | | | | |
| | |
| | |
| | |
|
| Net sales | | $ | 272,246 |
| | 100.0 | % | | $ | 262,756 |
| | 100.0 | % | | $ | 240,312 |
| | 100.0 | % |
| Cost of sales | | 107,601 |
| | 39.5 | % | | 105,030 |
| | 40.0 | % | | 94,003 |
| | 39.1 | % |
| Gross profit | | 164,645 |
| | 60.5 | % | | 157,726 |
| | 60.0 | % | | 146,309 |
| | 60.9 | % |
| Operating expenses | | 165,771 |
| | 60.9 | % | | 141,939 |
| | 54.0 | % | | 128,674 |
| | 53.5 | % |
| (Loss) income from operations - before impairment charges | | (1,126 | ) | | (0.4 | )% | | 15,787 |
| | 6.0 | % | | 17,635 |
| | 7.3 | % |
| Number of stores | | 206 |
| | | | 189 |
| | |
| | 169 |
| | |
|
| | | | | | | | | | | | | |
| FIRST COST SEGMENT: | | | | | | |
| | |
| | |
| | |
|
| Other commission income – net of expenses | | $ | 5,159 |
| | 100.0 | % | | $ | 3,728 |
| | 100.0 | % | | $ | 6,713 |
| | 100.0 | % |
| | | | | | | | | | | | | |
| LICENSING SEGMENT: | | | | | | |
| | |
| | |
| | |
|
| Licensing income – net of expenses | | $ | 9,100 |
| | 100.0 | % | | $ | 8,060 |
| | 100.0 | % | | $ | 9,852 |
| | 100.0 | % |
RESULTS OF OPERATIONS
($ in thousands)
Year Ended December 31, 20172022 vs. Year Ended December 31, 20162021
Consolidated:
Consolidated:
Net sales forTotal revenue in the year ended December 31, 20172022 increased by 10.5%13.7% to $1,546,098$2,122,009 compared to $1,866,142 for in 2021, with increases in the Wholesale Footwear, Wholesale Accessories/Apparel, and Direct-to-Consumer segments. Gross profit was $873,836, or 41.2% of total revenue, as compared to $767,497, or 41.1% of total revenue, in the prior year. Operating expenses in 2022 were $592,192, or 27.9%, of total revenue, as compared to $519,848, or 27.9% of total revenue, in the prior year. Operating expenses in 2022 include the accelerated amortization of a trademark of $7,050 and a $5,807 benefit from $1,399,551 for fiscal year 2016.Forthe change in valuation of a contingent consideration. In 2021, impairment charges of $2,620 and $1,432 were recorded associated with certain intangibles and lease right-of-use assets and fixed assets, respectively. No similar impairment charges were recorded in 2022. In the year ended December 31, 2017, gross margin2022, income from operations increased to $281,644, or 13.3% of total revenue, as a percentage of net sales increased slightly to 37.4% in the current year compared to 37.3%$243,597, or 13.1% of total revenue, in the prior year. Excluding the impact from the Schwartz & Benjamin acquisition, gross margin as a percentage of net sales increased to 38.3% driven by improvement in the Wholesale Footwear and Retail segments. Operating expenses increased in 2017 to $421,216, or 27.2% of total revenue, from $364,595, or 26.1% of total revenue, in 2016. The increase is primarily related to (i) the impact of the Schwartz & Benjamin acquisition, (ii) legal charges consisting of costs and estimated settlement amounts, (iii) bad debt related to the Payless ShoeSource bankruptcy, and (iv) charges to preferred interest investments related to the Brian Atwood acquisition. These increases were partially offset by the benefit received for the reversal of contingent liabilities related to the amended purchase agreement for the Schwartz & Benjamin acquisition. Commission and licensing fee income increased to $14,259 in 2017 compared to $11,788 in 2016. The effective tax rate for the year ended December 31, 2017 increased to 30.9%2022 was 23.1% compared to 29.3% in20.5% last year. The primary changes between the same period lastCompany’s effective tax rate for the year primarilyended December 31, 2022 and 2021 are due to the impact of the year-over-yeara lower tax benefit resulting from the exercising and vesting of share basedequity-based awards coupled with a shiftand an increase in profitability topre-tax income in jurisdictions with higher tax rates. These were partially offset by the net benefit related to the recently enacted Tax Cuts and Jobs Act in the United States. Net income attributable to Steven Madden, Ltd. for the year ended December 31, 2017 decreased to $117,9482022 was $216,061 compared to $120,911$190,678 for the year ended December 31, 2016.2021.
Wholesale Footwear Segment:Segment:
Net sales generated byRevenue from the Wholesale Footwear segment was $1,017,557, or 65.8%, and $881,864, or 63.0%, of our total net sales for the years ended December 31, 2017 and 2016, respectively. Excluding net sales related to the Schwartz & Benjamin acquisition, net sales increased 6.3%. The increase in net sales is primarily driven by strong growth in our core Steve Madden Women's brand coupled with growth in our Steve Madden Men's, Madden Girl, Steve Madden Kid's and Blondo brands, as well as growth in the SM Europe joint venture.
Gross profit margin increased to 32.7% in 2017 from 31.7% in the prior year period. Excluding the impact from the Schwartz & Benjamin acquisition, gross profit margin was 33.8%. The increase in gross profit margin primarily resulted from reduced mark-downs and closeouts, as well as a sales mix shift between our branded and private label businesses. Operating expenses increased to $197,722, or 19.4%, in 2017 compared to $169,796, or 19.3%, in the same period of 2016 primarily due to (i) the impact of the Schwartz & Benjamin acquisition, (ii) legal charges consisting of costs and estimated settlement amounts, (iii) bad debt related to the Payless ShoeSource bankruptcy, and (iv) charges to preferred interest investments related to the Brian Atwood acquisition. These increases were partially offset with a benefit due to a decrease in contingent liabilities related to the amended purchase agreement for the Schwartz & Benjamin acquisition. Income from operations before impairment charges increased to $134,645 for the year ended December 31, 20172022 accounted for $1,194,890, or 56.3% of total revenue, as compared to $110,039 for the year ended December 31, 2016.
Wholesale Accessories Segment:
Net sales generated by the Wholesale Accessories segment accounted for $256,295,$1,022,322, or 16.6%, and $254,931, or 18.2%,54.8% of total Company net sales for the years ended December 31, 2017 and 2016, respectively.
Gross profit margin in the Wholesale Accessories segment decreased to 31.5% in 2017 from 33.1% in the prior year period primarily due to lower margins in our cold weather business driven by prior season inventory closeouts. In the year ended December 31, 2017, operating expenses increased to $57,092, or 22.3% of revenue, compared to $52,860, or 20.7% of revenue, in the year ended December 31, 20162021. The 16.9% increase in revenue in the current year is primarily the result of an increase in sales of our Steve Madden, Anne Klein and Dolce Vita brands. Gross profit was $431,081, or 36.1% of Wholesale Footwear revenue, in the year ended December 31, 2022 as compared to $345,167, or 33.8% of Wholesale Footwear revenue, in the year ended December 31, 2021. The increase of gross profit as a percentage of revenue was primarily due to the impactshift in revenue mix to our higher-margin branded business partially offset by higher freight costs. Operating expenses in the year ended December 31, 2022 were $166,123, or 13.9%, of Wholesale Footwear revenue, as compared to $128,004, or 12.5% of Wholesale Footwear revenue, in the year-over-yearyear ended December 31, 2021. The increase in operating expenses as a percentage of Wholesale Footwear revenue was primarily attributable to higher warehouse expenses, payroll, and advertising expenses. Income from operations increased to $264,958, or 22.2% of Wholesale Footwear revenue in 2022 as compared to $217,163, or 21.2% of Wholesale Footwear revenue, in 2021.
Wholesale Accessories/Apparel Segment:
Revenue from the Wholesale Accessories/Apparel segment in the year ended December 31, 2022 accounted for $394,676, or 18.6% of total revenue, as compared to $343,675, or 18.4% of total revenue, in the year ended December 31, 2021. The 14.8% increase in revenue resulted from an increase in our branded handbag business as well as our apparel business. Gross profit was $100,085, or 25.4% of Wholesale Accessories/Apparel revenue, in the year ended December 31, 2022, as compared to $94,675, or 27.5% of Wholesale Accessories/Apparel revenue, in the year ended December 31, 2021. The decrease of gross profit as a percentage of revenue was primarily due to higher freight costs. Operating expenses in the year ended December 31, 2022 were $70,310, or 17.8%, of Wholesale Accessories/Apparel revenue, as compared to $64,776, or 18.8%, of Wholesale Accessories/Apparel revenue, in the year ended December 31, 2021. The decrease in operating expenses as a percentage of Wholesale Accessories/Apparel revenue was primarily attributable to greater leverage from higher revenue and benefit received forfrom the reversalchange in valuation of our contingent liabilities related toconsideration, partially offset by the Cejon acquisitionaccelerated amortization of a trademark. In 2021, impairment charges of $2,620 and $651 were recorded associated with certain intangibles and lease right-of-use assets and fixed assets, respectively. No similar impairment charges were recorded in 2016.2022. Income from operations for the Wholesale AccessoriesAccessories/Apparel segment decreased to $23,637 in 20172022 was $29,775, or 7.5% of Wholesale Accessories/Apparel revenue, as compared to $31,562$26,628, or 7.7% of Wholesale Accessories/Apparel revenue, in 2016.2021.
Direct-to-Consumer Segment:
Retail Segment:
Net sales generated byIn the Retailyear ended December 31, 2022, revenue from the Direct-to-Consumer segment accounted for $272,246,$521,729, or 17.6%, and $262,756, or 18.8%,24.6% of total Company net sales forrevenue, as compared to $487,906, or 26.1% of total revenue, in the yearstwelve months of 2021. The 6.9% increase in revenue was driven by increases in both our brick-and-mortar stores and our e-commerce business. We opened 28 brick-and-mortar stores and closed 10 brick-and-mortar stores during the year ended December 31, 2017 and 2016, respectively, which represents a $9,490 or 3.6% increase, year-over-year. This growth is due to the net addition of seventeen stores from the prior year partially offset by a decrease in comparable
store sales of 3.2%. During 2017, we added thirteen full price stores and six outlets, and closed two full price locations. As a result, we had 206 retail stores as of December 31, 2017, compared to 189 stores as of December 31, 2016. The 206 stores currently in operation include 138 Steve Madden full price stores, 60 Steve Madden outlet stores, three Steven stores, one Superga store and four e-commerce websites. In addition, during 2017, we opened 21 concessions in Asia through our China and Taiwan joint ventures,2022 and ended the year with 38 company-operated concessions232 brick-and-mortar stores and six e-commerce sites compared to 214 brick-and-mortar stores and six e-commerce sites as of
December 31, 2021. During the year ended December 31, 2022, gross profit was $331,956, or 63.6% of Direct-to-Consumer revenue, compared to $315,416, or 64.6% of Direct-to-Consumer revenue, in international markets.Comparable store sales (salesthe twelve months of those stores, including2021. The decrease in gross profit as a percentage of revenue was primarily due to higher promotional activity, partially offset by a reduction in air freight expense. Operating expenses for the e-commerce websites, thattwelve months of 2022 were open$264,307, or 50.7% of Direct-to-Consumer revenue, as compared to $240,093, or 49.2% of Direct-to-Consumer revenue, for allthe twelve months of 20172021. The increase in operating expenses as a percentage of Direct-to-Consumer revenue was primarily due to higher advertising and 2016)payroll related expenses. In 2021, impairment charges of $781 were recorded associated with certain fixed assets and lease right-of-use assets. No similar impairment charges were recorded in 2022. In 2022, income from operations for the Direct-to-Consumer segment was $67,649, or 13.0% of Direct-to-Consumer revenue as compared to $74,542, or 15.3% of Direct-to-Consumer revenue, in 2021.
First Cost Segment:
Commission income generated by the First Cost segment accounted for $916 for the year ended December 31, 2017 decreased 3.2% when2022 compared to the prior year. The Company excludes new locations from the comparable store base for the first year$2,346, or 0.1% of operations. Stores that are closed for renovations are removed from the comparable store base. During the year ended December 31, 2017, gross margin increased to 60.5% from 60.0% in 2016 primarily due to lower promotional activity during 2017. In 2017, operating expenses increased to $165,771, or 60.9% oftotal revenue, from $141,939, or 54.0% of revenue, in 2016 primarily due to the incremental costs associated with new store openings, legal charges consisting of costs and estimated settlement amounts related to early lease terminations and increases in employee-related costs. For the year ended December 31, 2017, losses from operations for the Retail segment were $1,126 compared income from operations of $15,787 in the prior year.
First Cost Segment:
Income for the First Cost segment, which includes net commission income and fees, increased to $5,159 for the year ended December 31, 2017,2021. Operating expenses decreased to $150 in the current period compared to $3,728 in 2016 due to an increase in business with certain private label footwear customers.
Licensing Segment:
During the year ended December 31, 2017, income for the Licensing segment increased to $9,100 as compared to the prior year income$375 of $8,060 primarily due to gains with our Steve Madden licensed products.
Year Ended December 31, 2016 vs. Year Ended December 31, 2015
Consolidated:
Net saleslast year. Income from operations was $766 for the year ended December 31, 2016 decreased slightly by 0.4% to $1,399,551 from $1,405,239 for fiscal year 2015.For the year ended December 31, 2016, gross margin2022 as a percentage of net sales increased to 37.3% compared to 35.6% in the prior year primarily resultingincome from higher initial mark-ups, decreased markdown allowances, and reduced close-outs coupled with sales mix in the Wholesale Footwear segment.Operating expenses increased in 2016 to $364,595 from $342,364 in 2015. Operating expensesoperations of $1,971 for the year ended December 31, 2015 included a benefit of $3,048 related to2021.
Licensing Segment:
Royalty income arising from the early termination of our lease for our 5th Avenue, New York store, which was closed during the first quarter of 2015. Excluding this benefit, operating expenses in 2015 were $345,412. Excluding the aforementioned benefit, the increase in operating expenses in 2016 is primarily due to the increase in retail store locations, employee-related expenses, charges related to an increase in contingent liabilities related to the Dolce Vita acquisition and costs associated with our SM Europe joint venture. As a result, operating expenses as a percentage of sales increased to 26.1% in the year ended December 31, 2016 compared to 24.6%, excluding the aforementioned benefit, in the previous year. Commission and licensing fee income decreased to $11,788 in 2016 compared to $16,565 in 2015 primarily due to a decline in our First Cost segment. During the year ended December 31, 2016, income from operations decreased to $169,176 and net income attributable to Steven Madden, Ltd. increased to $120,911 compared to income from operations of $171,648 and net income attributable to Steven Madden, Ltd. of $112,938 in 2015. Net income attributable to Steven Madden, Ltd. for the year ended December 30, 2016 included a tax benefit of $5,244 related to the adoption of Accounting Standards Update No. 2016-09, "Improvements to Employee Share-Based Payment Accounting," which changes the accounting for certain aspects of share-based payments to employees. Net income attributable to Steven Madden, Ltd. for the year ended December 30, 2015 included the $3,048 pre-tax benefit related to the closure of our 5th Avenue, New York store location as well as a pre-tax charge of $3,045 related to the partial impairment of our Wild Pair trademark. (See Note A to the Consolidated Financial Statements under “Good will and intangible assets.”)
Wholesale Footwear Segment:
Net sales generated by the Wholesale FootwearLicensing segment was $881,864,accounted for $9,798, or 63.0%, and $898,363, or 63.9%,0.5% of our total
net sales for the years ended December 31, 2016 and 2015, respectively. The decrease was driven by decreases in sales in our private label business, international distributor business and our Madden Girl brand partially offset by increases in sales of our Dolce Vita, Steve Madden Women's and Blondo brands.
Gross profit margin increased to 31.7% in 2016 from 29.6% in the prior year primarily resulting from higher initial mark-ups, decreased markdown allowances, and reduced close-outs coupled with sales mix. Operating expenses increased to $169,796
in 2016 compared to $157,941 in the same period of 2015 primarily due to charges related to an increase in contingent liabilities related to the Dolce Vita acquisition coupled with increases in employee-related expenses, advertising and promotion, and costs associated with our SM Europe joint venture. As a percentage of sales, operating expenses increased to 19.3% in 2016 from 17.6% in 2015 due to the increase in expenses discussed above coupled with deleverage on lower sales. Income from operations, excluding a pre-tax charge of $3,045 related to the partial impairment of our Wild Pair trademark in 2015, increased to $110,039 revenue, for the year ended December 31, 20162022 compared to $107,881$9,893, or 0.5% of total revenue, for the year ended December 31, 2015.
Wholesale Accessories Segment:
Net sales generated by the Wholesale Accessories segment accounted for $254,931, or 18.2%, and $266,564, or 19.0%, of total Company net sales for the years ended December 31, 2016 and 2015, respectively.The decrease year over year is primarily driven by decreases in sales of Big Buddha handbags, cold weather accessories and belts partially offset by increases in sales of private label handbags.
Gross profit margin2021. Operating expenses increased to $1,944 in the Wholesale Accessories segment remained flat at 33.1% in 2016 and 2015. In thecurrent year ended December 31, 2016, operating expenses decreased to $52,860 compared to $55,749 in the year ended December 31, 2015. As a percentage of sales, operating expenses decreased$1,785 to 20.7% in 2016 from 20.9% in 2015 primarily due to the impact of the year-over-year benefit received for the reversal of contingent liabilities related to acquisitions in the third quarter of 2016 and 2015.last year. Income from operations for the Wholesale AccessoriesLicensing segment decreased to $31,562 in 2016 compared to $32,612 in 2015.
Retail Segment:
Net sales generated by the Retail segment accounted for $262,756, or 18.8%, and $240,312, or 17.1%, of total Company net sales for the years ended December 31, 2016 and 2015, respectively, which represents a $22,444 or 9.3% increase, year over year. This growth is primarily due to the net addition of twenty stores from the prior year coupled with an increase in comparable store sales of 4.0% driven by strong fashion footwear trends and stronger product assortment. During 2016, we added nine full price stores and twelve outlets and closed one full price location. As a result, we had 189 retail stores as of December 31, 2016, compared to 169 stores as of December 31, 2015. The 189 stores in operation as of December 31, 2016 include 129 Steve Madden full price stores, 52 Steve Madden outlet stores, two Steven stores, one Superga store, one multi-branded SHOO store and four e-commerce websites. Comparable store sales (sales of those stores, including the e-commerce websites, that were open for all of 2016 and 2015)was $7,854 for the year ended December 31, 2016 increased 4.0% when2022 as compared to $8,108 in the prior year. The Company excludes new locations from
Corporate:
Corporate does not constitute a reportable segment and includes costs not directly attributable to the comparable store base for the first year of operations. Stores thatsegments. These costs are closed for renovations are removed from the comparable store base. Duringprimarily related to expenses associated with corporate executives, corporate finance, legal, human resources, information technology, cyber security, corporate social responsibility, and other shared services. Corporate operating expenses increased 5.4% to $89,358 during the year ended December 31, 2016, gross margin decreased2022 as compared to 60.0% from 60.9% in 2015 primarily due to the impact of foreign currency fluctuations on our international operations. In 2016, operating expenses increased to $141,939 from $128,674 in 2015 primarily due to the incremental cost associated with new store openings and increases in employee-related and rent expenses in existing locations. Operating expenses in 2015 included a benefit of $3,048 related to income arising from the early termination of our lease for our 5th Avenue, New York store, which was closed during the first quarter of 2015. Excluding this benefit, operating expenses in 2015 were $131,722. Excluding the lease benefit in 2015, operating expenses as a percentage of sales decreased to 54.0% in 2016 from 54.8%$84,815 in the prior year. For the year ended December 31, 2016, income from operations for the Retail segment decreased to $15,787 compared to $17,635 in the prior year. Excluding the benefit of $3,048 in 2015, income from operations for the Retail segment in 2015 was $14,587.
Income for the First Cost segment, which includes net commission income and fees, decreased to $3,728 for the year ended December 31, 2016, compared to $6,713 in 2015 due to a reduction in business with certain private label footwear customers.
Licensing Segment:
During the year ended December 31, 2016, income for the Licensing segment decreased to $8,060 as compared to the prior year income of $9,852 primarily driven by the discontinuation of the Steve Madden eyewear licenses.
LIQUIDITY AND CAPITAL RESOURCES
($ in thousands)
Our primary sourcesources of liquidity isare cash flows generated from our operations. Our primary use of this liquidity is to fund our ongoingoperations, cash, requirements, including working capital requirements, share repurchases, acquisitions, system enhancementscash equivalents and retail store expansion and remodeling.
short-term investments. Cash, cash equivalents and short-term investments totaled $245,241$289,798 and $165,610$263,536 at December 31, 20172022 and December 31, 2016,2021, respectively. Of the total cash, cash equivalents and short-term investments atas of December 31, 2017, $135,884,2022, $133,729, or approximately 55%46%, was held in our foreign subsidiaries, and of the total cash, cash equivalents and short-term investments at December 31, 2016, $70,450,2021, $156,112, or approximately 43%59%, was held in our foreign subsidiaries.
On July 22, 2020, we entered into a $150,000, five-year, asset-based revolving credit facility with various lenders and Citizens Bank, N.A. On March 25, 2022, we entered into an amendment to the revolving credit facility, which replaced the London Interbank Offering Rate (“LIBOR”) with the Bloomberg Short-Term Bank Yield Index (“BSBY”) as the interest rate benchmark, among other changes.
As of December 31, 2017, the Company has recorded $21,944 related to the one-time transition tax and related withholding tax expense on the deemed repatriation of cumulative foreign earnings under the Tax Cuts and Jobs Act, of which $1,566 is expected to be paid within one year. The remaining portion of the tax will be paid over an eight-year period, starting in 2018, and will not accrue interest.
The Company has a collection agency agreement with Rosenthal & Rosenthal, Inc. (“Rosenthal”). The agreement provides us with a credit facility in the amount of $30,000, having a sub-limit of $15,000 on the aggregate face amount of letters of credit, at an interest rate based, at our election, upon either the prime rate or LIBOR. The agreement can be terminated by the Company or Rosenthal at any time with 60 days’ prior written notice. As of December 31, 2017 we had no borrowings against this credit facility.
As of December 31, 2017,2022, we had working capital of $438,906,$522,649, cash and cash equivalents of $181,214,$274,713, and short-term investments in marketable securities shortof $15,085 and long termno cash borrowing and $503.9 letters of $93,550 and we did not have any long-term debt.
credit outstanding unrelated to the Credit Agreement.
We believe that based uponon our current financial position and available cash, cash equivalents and marketable securities,short-term investments, we will meet all of our financial commitments and operating needs for at least the next 12twelve months. In addition, our $150,000 asset-based revolving credit facility provides us with additional liquidity and flexibility on a long-term basis.
OPERATING ACTIVITIESOperating Activities
($ in thousands)
Cash provided by operations was $157,935$267,883 in 20172022 compared to cash provided by operations of $153,604$159,463 in the prior year. The primary sources ofimprovement in cash were net income of $119,138 and decreasesprovided by operations was primarily driven by favorable changes in receivables, inventories, and accounts receivable of $21,135 and $20,715, respectively. The primary use of cash was an increase in factornet income, partially offset by unfavorable changes in accounts receivablepayable and accrued expenses.
Investing Activities
Cash provided by investing activities was $5,517 for the year ended December 31, 2022, which consisted of $57,268.cash received of $73,998 from the maturities and sales of short-term investments partially offset by purchases of $45,130 in short-term investments. We also made capital expenditures of $16,351, which were mainly for systems enhancements, new store openings and leasehold improvements. We also had investments of $7,000, of which $2,000 consisted of a purchase of a trademark and $5,000 related to other investing activities.
INVESTING ACTIVITIES
($ in thousands)
Financing Activities
During the year ended December 31, 2017, we invested $61,209 in marketable securities and received $79,141 from the maturities and sales of securities. We made capital expenditures of $14,775, principally for new stores and improvements to existing stores, systems enhancements and leasehold improvements to office space. Cash of $221 was received in the repayment of the note receivable from the seller of SM Canada. Lastly, we made a payment in the amount of $16,495 for the acquisition of Schwartz & Benjamin.
FINANCING ACTIVITIES
($ in thousands)
During the year ended December 31, 2017,2022, net cash used byin financing activities was $90,338,$215,828, which primarily consisted of share repurchases of $99,412$148,878 and paymentcash dividends paid of contingent liabilities related to acquisitions completed in prior years of $7,359, partially offset by proceeds from the exercise of stock options of $16,433.$66,005.
($ in thousands)
Contractual Obligations
Our contractual obligations as of December 31, 20172022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Payment due by period |
| (in thousands) | | Total | | 2023 | | 2024-2025 | | 2026-2027 | | 2028 and after |
| Operating lease obligations | | $ | 121,023 | | | $ | 33,567 | | | $ | 49,288 | | | $ | 25,298 | | | $ | 12,870 | |
| Purchase obligations | | 149,006 | | | 148,940 | | | 67 | | | — | | | — | |
| Future minimum royalty and advertising payments | | 23,437 | | | 5,437 | | | 12,000 | | | 6,000 | | | — | |
| Transition tax | | 11,721 | | | 2,930 | | | 8,791 | | | — | | | — | |
| Total | | $ | 305,187 | | | $ | 190,874 | | | $ | 70,146 | | | $ | 31,298 | | | $ | 12,870 | |
|
| | | | | | | | | | | | | | | | | | | | |
| | | Payment due by period |
| Contractual Obligations | | Total | | 2018 | | 2019 - 2020 | | 2021 - 2022 | | 2023 and after |
| Operating lease obligations | | $ | 249,276 |
| | $ | 44,629 |
| | $ | 78,515 |
| | $ | 59,160 |
| | $ | 66,972 |
|
| Purchase obligations | | 156,532 |
| | 156,532 |
| | — |
| | — |
| | — |
|
| Contingent payment liability | | 10,000 |
| | 7,000 |
| | 3,000 |
| | — |
| | — |
|
| Other long-term liabilities (future minimum royalty payments) | | 16,138 |
| | 4,078 |
| | 10,060 |
| | 2,000 |
| | — |
|
| Total | | $ | 431,946 |
| | $ | 212,239 |
| | $ | 91,575 |
| | $ | 61,160 |
| | $ | 66,972 |
|
At December 31, 2017, we had no open letters of credit for the purchase of inventory.
VirtuallySubstantially all of our products are produced by independent manufacturers at overseas locations, the majority of which are located in China, with a small and growing percentage located in Italy in addition to smaller volumes inCambodia, Mexico, Brazil Mexico, India, Vietnam, The Netherlands, The Dominican Republic and South Korea.some European nations. We have not entered into any long-term manufacturing or supply contracts with any of these foreign manufacturers. We believe that a sufficient number of alternative sources exist outside of the United States for the manufacture of our products. Purchases are made primarily in United States dollars.
On January 3, 2012, the Company and itsWe have employment agreements with our Creative and Design Chief, Steven Madden, entered into an amendment, dated as of December 31, 2011, to Mr. Madden’s then existing employment agreement with the Company. The amended agreement, which extends the term of Mr. Madden's employment through December 31, 2023, provides, among other things, for a base salary of approximately $7,026 per annum for the period between January 1, 2016 through the expiration of the term of employment. Also under the employment agreement, Mr. Madden received the right, exercisable on certain specified dates in fiscal year 2012 only, to elect to receive a grant of restricted stock for a number of shares of the Company’s common stock valued at $40,000 in consideration for certain specified reductions in his annual base salary in years subsequent to 2012. Mr. Madden exercised this right and on July 3, 2012, he was granted 1,893,342 restricted shares of the Company's common stock at the then market price of $21.13, which shares vest in the same manner as the February 8, 2012 restricted stock grant received by Mr. Madden pursuant to the amended agreement. (See Note N to the consolidated financial statements.) Further, in addition to the opportunity for cash bonuses at the sole discretion of the Board of Directors, Mr. Madden’s employment agreement entitles him to an annual life insurance premium payment as well as an annual stock option grant. The employment agreement also provides Mr. Madden the potential for an additional one-time stock option award for 750,000 shares of the Company’s common stock (the “EPS Option”) in the event that the Company achieves earnings per share on a fully-diluted basis equal to $2.00 as to any fiscal year ending December 31, 2015 or thereafter, which performance criteria was achieved for the fiscal year ended December 31, 2016. On March 1, 2017, Mr. Madden was granted the EPS Option at an exercise price of $37.35 per share. The EPS Option vests in equal annual installments over a five-year period commencing on the first anniversary of the grant date.
The Company has employment agreements with certain executive officers, which provide for the payment of compensation aggregating to approximately $3,898$9,675 in 2018, $1,9782023, $8,998 in 20192024 and $148$7,851 in 2020.2025. In addition, some of these employment agreements provide for discretionary bonuses and some provide for incentive compensation based on various performance criteria as well as other benefits, including stockstock-related compensation.
Transition tax of $11,721 was the result of the Tax Cuts and Jobs Act of 2017 (the "Tax Act"). For further information, refer to Note N – Income Taxes to the Consolidated Financial Statements included in this Annual Report on Form 10-K. Excluded from the contractual obligations table above are long-term taxes payable of $1,145 as of December 31, 2022 primarily related compensation.to uncertain tax positions, for which we are unable to make a reasonably reliable estimate of the timing of payments in individual years beyond one year due to uncertainties in the timing of tax audit outcomes.
DIVIDENDSDividends
In February 2018, the2022, our Board of Directors of the Company declared a quarterly cash dividend of $0.20$0.21 per share on the Company’sour outstanding shares of common stock. The dividend is payablewas paid on March 29, 2018,25, 2022, to stockholders of record as of the close of business on March 12, 2018. The Company currently expects to continue11, 2022. We paid total cash dividends for the practicethree months ended March 31, 2022 of paying$16,774.
In April 2022, our Board of Directors declared a quarterly cash dividend; however,dividend of $0.21 per share on our outstanding shares of common stock. The dividend was paid on June 24, 2022, to stockholders of record as of the paymentclose of futurebusiness on June 13, 2022. We paid total cash dividends will befor the three months ended June 30, 2022 of $16,615.
In July 2022, our Board of Directors declared a quarterly cash dividend of $0.21 per share on our outstanding shares of common stock. The dividend was paid on September 26, 2022, to stockholders of record as of the close of business on September 16, 2022. We paid total cash dividends for the three months ended September 30, 2022 of $16,385.
In November 2022, our Board of Directors declared a quarterly cash dividend of $0.21 per share on our outstanding shares of common stock. The dividend was paid on December 30, 2022, to stockholders of record as of the close of business on December 16, 2022. We paid total cash dividends for the three months ended December 31, 2022 of $16,231.
On February 22, 2023, our Board of Directors approved a quarterly cash dividend. The quarterly dividend of $0.21 per share is payable on March 24, 2023 to stockholders of record as of the close of business on March 10, 2023.
Future quarterly cash dividend payments are subject to the discretion of our Board of Directors and will be contingent upon future earnings, if any, our financial condition, capital requirements, general business conditions, and other factors. Therefore, we can give no assurance that cash dividends of any kind will be paid to holders of our common stock in the future.
INFLATION
Inflation
We do not believe that inflationInflation and price changescost pressures including increasing raw material, labor and freight costs have had a significant effectimpact on the Company's sales orour profitability forin the fiscal year ended December 31, 20172022 and the prior two fiscal years. Historically, weelevated prices are expected to continue in 2023. We have minimized the impact of product, wage and freight cost increases by increasingraising prices, renegotiating costs, changing suppliers and by improving operating efficiencies. However, no assurance can be given that we will be able to offset any such inflationary cost increases in the future.
OFF BALANCE SHEET ARRANGEMENTS
The Company has no off balance sheet arrangements.
CRITICAL ACCOUNTING POLICIES AND THE USE OF ESTIMATES
Management’s DiscussionManagement believes the following critical accounting estimates are the most significantly affected by judgments and Analysisassumptions used in the preparation of Financial Condition and Results of Operations is based upon our consolidated financial statements included in this Annual Report on Form 10-K, which have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP"). The preparationstatements: allowances for doubtful accounts; markdowns and chargeback allowances, co-op advertising allowances, customer returns; inventory valuation; valuation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, sales and expenses, and related disclosure of contingentintangible assets and liabilities. Estimates by their nature are based on judgmentsgoodwill; and available information.impairment of other long-lived assets. Our estimates are made based upon historical factors, current and future circumstances and market conditions, and the experience and judgment of management. Assumptions and estimates are evaluated on an ongoing basis, and we may employ outside experts to assist in evaluations. Therefore, actual results could materially differthe valuation process of our intangible assets, goodwill, and other long-lived assets.
Allowances for doubtful accounts. A vast majority of our customers’ receivable balances are protected under our factoring and collection agency agreement with Rosenthal & Rosenthal, Inc. (“Rosenthal”), described in Note Q – Factoring Agreement to the Consolidated Financial Statements included in this Form 10-K. Under this agreement, Rosenthal assumes the credit risk resulting from those estimatesa customer’s financial inability to make payment of credit-approved receivables. We also use risk insurance, letters of credit and put agreements to mitigate credit risk for a significant portion of the receivables not covered under different assumptions and conditions. Management believes the following critical accounting estimates are more significantly affectedour Rosenthal agreement. The balance of receivables not covered under our Rosenthal agreement is reduced by judgments and estimates usedan allowance for amounts that may be uncollectible in the preparationfuture.
The estimated allowance for doubtful accounts is based on an analysis of the aging of accounts receivable, assessments of collectability based on historical trends, the financial condition of our consolidatedcustomers and an evaluation of economic conditions. Differences in management’s estimation of the above factors could impact our results of operations and financial statements:position. The balances of allowances for doubtful accounts are generally correlated with our revenues from wholesale customers whose receivables are not covered under our Rosenthal agreement, and actual losses have historically been within our expectations and in line with the allowances we have established. The balances and activity in the allowances for doubtful accounts are presented in Note T – Valuation and Qualifying Accounts to the Consolidated Financial Statements included in this Form 10-K. A hypothetical 5% increase in our allowance for bad debts, returns, and customer chargebacks; inventory valuation; valuationdoubtful accounts as of intangible assets, litigation reserves, and contingent payment liabilities.December 31, 2022 would have increased our 2022 operating expenses by approximately $400.
Allowances for bad debts, returns and customer chargebacks. We provide reserves against our trade accounts receivables for future customerMarkdowns, chargebacks, co-op advertising, and customer returns. As described in Note B – Summary of Significant Accounting Policies to the Consolidated Financial Statements included in this Form 10-K, we provide variable consideration to our wholesale customers to maximize sales of our product on the retail floor, in the form of markdowns and chargeback allowances, discounts, returnsco-op advertising allowances, and other miscellaneous deductions that relatereturn reserves related to the current period. The reserve against our non-factored trade receivables also includes estimated losses that may result from customers’ inability to pay. The amount of the reserve for bad debts, returns, discountsperiod sales.
a.Markdowns and compliance chargebacks are determined by analyzing aged receivables, current economic conditions, the prevailing retail environment and historical dilution levels for customers.chargeback allowances. We evaluate anticipated customer markdowns and advertising chargebackschargeback allowances by reviewing several performance indicators for our major customers. These performance indicators, (whichwhich include inventory levels aton the retail floors, sell through rates to the end consumer and gross margin levels)levels, are analyzed by management to estimate the amount of the anticipated customer allowance. Failureallowances. We also discuss product performance with our retail partners on an ongoing basis to correctly estimate the amountgather more intelligence to inform our estimation process. Differences in management’s estimation of the reserveabove factors from period to period could materially impact our results of operations and financial position. The levels of markdown and chargeback allowances are generally correlated with our revenues to wholesale customers. A hypothetical 5% increase in the reserve balance for markdowns and chargeback allowances as of December 31, 2022 would have decreased our 2022 revenue by approximately $1,000.
b.Co-op advertising allowances. Under our co-op advertising programs, we agree to reimburse the retailer for a portion of the costs incurred by the retailer to advertise and promote some of our products. We estimate the costs of co-op advertising programs based on the terms of the agreements with our customers. Differences in management’s estimation of the co-op advertising activity at our customers and the resulting amount of the reserve for these allowances from period to period could impact our results of operations and financial position. The level of co-op advertising support is generally correlated with our revenues to wholesale customers. A hypothetical 5% increase in the reserve balance for co-op advertising allowances as of December 31, 2022 would have decreased our 2022 revenue by approximately $300.
c.Return reserve. Our Direct-to-Consumer segment accepts returns within 30 days from the date of a sale. We estimate a return reserve in the Direct-to-Consumer segment by establishing a return rate using historical returns data. The rate is then applied to eligible revenues recorded in the current period to calculate the reserve. We do not accept returns as a normal business practice in our wholesale segments, except for our Blondo, Dolce Vita and BB Dakota product lines. We estimate such returns based on historical experience and current market conditions. In addition, our wholesale segments may, from time to time, accept returns for damaged products from our wholesale customers on which our
costs are normally charged back to the responsible third-party factory. The level of returns is generally correlated with our revenues to wholesale customers. A hypothetical 5% increase in the return reserve as of December 31, 2022 would have decreased our 2022 revenue by approximately $200.
The balances and activity in the markdown, chargeback and co-op advertising allowances are included in Note T – Valuation and Qualifying Accounts to the Consolidated Financial Statements included in this Form 10-K.
Inventory valuation. valuation. Inventories are stated at lower-of-costthe lower of cost or market,net realizable value, on a first-in, first-out basis. We review inventory on a regular basis for excess and slow movingslow-moving inventory. The review is based on an analysis of the age and styles of inventory on hand, priorhistorical sales of the same or similar products, and expected net realizable value through future sales. The analysis includes a review of inventory quantities on hand at period-end in relation to year-to-date sales and projections for sales in the foreseeable future as well as subsequent sales.sales and discussions with both traditional and off-price retailers. We consider quantities on hand in excess of estimated future sales to be at risk for market impairment. The estimated net realizable value, or market value is determined based on the estimate of salesselling prices of such inventory through off-price orand discount store channels.channels, department stores and our own direct-to-consumer channel. The likelihood of any material inventory write-down is dependent primarily on the expectation of future consumer demand for our product.products, which is influenced by consumer trends, economic and market conditions, weather patterns for seasonal goods and the impacts of the COVID-19 pandemic. A misinterpretation or misunderstanding of future consumer demand for our product, the economy,products due to these or any other failure to estimate correctly, in addition to abnormal weather patterns,factors could result in inventory valuation changes compared to the valuation determined to be appropriate as of the balance sheet date.
In general, our inventory obsolescence estimates have historically been within our expectations and in line with the reserves established, and although possible, significant variation is not expected in the future. A hypothetical 5% increase to inventory reserves at December 31, 2022 would have decreased our 2022 gross profit by approximately $400.
Valuation of intangible assets and goodwill. Accounting Standards Codification (“ASC”) Topic 350, “Intangible – goodwill. Goodwill and Other”, requires that goodwill andother intangible assets withdeemed to have indefinite useful lives beare not amortized. These assets are tested for impairment at least annually. This pronouncement also requires that intangibleannually on the first day of the third quarter, or more frequently if impairment indicators are present. Intangible assets with finite lives beare amortized over their respectiveestimated useful lives to their estimated residual values, and reviewedtested for impairment in accordance with ASC Topic 360, “Property, Plantif indicators are present.
Our annual impairment assessment of goodwill and Equipment” (“ASC Topic 360”).
Indefinite-livedindefinite-lived intangible assets and goodwill are assessed for impairment by performingis generally performed using a qualitative assessment which evaluates relevant events or circumstances in orderapproach to determine whether it is more likely than not that the fair value of an intangible or a reporting unit or intangible asset is less than its carrying amount. Factors considered include historical financial performance,Performance of the qualitative impairment assessment requires judgment in identifying and considering the significance of relevant events and circumstances including external factors, such as macroeconomic and industry conditions (including the COVID-19 pandemic) and the legal and regulatory environment. environment, as well as entity-specific factors, such as actual and planned financial performance, that could impact the fair value of our reporting units and indefinite-lived intangible assets. The results of our most recent quantitative tests are also considered in performing the qualitative assessment.
If the results of the annual qualitative assessment conclude that it is not more likely than not that the fair value of a reporting unit or an indefinite-lived intangible asset exceeds its carrying value, or if interim indicators of impairment are identified, a quantitative impairment test is performed.
A quantitative impairment test involves comparing the fair value of a reporting unit or intangible asset with its carrying value. If the fair value is less than the carrying value, an impairment loss is recorded for an amount equal to the excess of the carrying value over the fair value. For goodwill, the impairment loss is limited to the amount of the respective reporting unit’s allocated goodwill. Determination of the fair value of a reporting unit or indefinite-lived intangible asset is subjective in nature and involves the use of significant estimates and assumptions including consideration of external factors, such as macroeconomic and industry conditions (including the COVID-19 pandemic) and the legal and regulatory environment, as well as entity-specific factors such as actual and planned financial performance. These estimates and assumptions could have a significant impact on whether an impairment charge is recognized and the amount of any such charge. Estimates of fair value are primarily determined using discounted cash flows, market comparisons and recent transactions. These approaches use significant estimates and assumptions, including projected future cash flows, discount rates, growth rates, and determination of appropriate market comparisons. It is possible that our conclusions regarding impairment of goodwill or other intangible assets could change in future periods if, for example, our businesses do not perform as projected or overall economic conditions in future periods vary from current assumptions.
Our annual impairment tests were last performed as of July 1, 2022 using a qualitative assessment, the results of which indicated that it is more likely than not that the fair valuevalues of our reporting units and indefinite-lived intangible assets significantly exceeded their carrying values. A hypothetical 10% decrease in the fair values of our reporting units and our indefinite-lived intangible assets as of December 31, 2022 would not have resulted in any impairment charges. No goodwill or intangible asset impairment charges were recorded as a result of our annual impairment tests during any of the reporting unit is less than its carrying amount,years presented in this Form 10-K.
During the fourth quarter of 2021, certain decisions were made by the Company that resulted in the change in the useful life of the BB Dakota trademark from an indefinite to a finite life. As a result, the BB Dakota trademark was assessed for impairment. The estimated fair value of this trademark was determined using an excess earnings method, incorporating the reporting unit is compared withuse of projected financial information and a discount rate, which was developed using market participant-based assumptions. As a result of this assessment, the BB Dakota trademark was written down from the carrying value of $9,670 to its carrying amount and, if the fair value of
$7,050, resulting in a pre-tax, non-cash impairment charge of $2,620. This charge was recorded in impairment of intangibles in the Company’s Consolidated Statements of Income/ (Loss) and recognized in the Wholesale Accessories/Apparel segment. The fair value of $7,050 was amortized over its remaining useful life of one year and was fully amortized at the end of 2022.
As a result of the COVID-19 pandemic and decline in the macroeconomic environment, during the twelve months ended December 31, 2020, the Company’s Cejon, Report, GREATS and Jocelyn trademarks (indefinite-lived intangibles) were written down from an aggregate carrying value of $57,198 to their fair values of $12,925, resulting in a pre-tax non-cash impairment charge of $44,273. These charges were recorded in impairment of intangibles in the Company’s Consolidated Statements of Income/ (Loss) and recognized in three reporting unit is less than its carrying amount, an impairment is recognized equalunits: $27,472 related to Wholesale Accessories/Apparel, $16,345 related to Wholesale Footwear and $456 related to the amount byDirect-to-Consumer segments, respectively. The estimated fair values of these trademarks were determined using an excess earnings method, incorporating the use of projected financial information and a discount rate, which was developed using market participant-based assumptions.
See Note G – Goodwill and Intangible Assets to the reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount. Consolidated Financial Statements included in this Form 10-K for further detail and impairment charges.
Impairment of other long-lived assets. We perform this annual assessment during our third quarter.
In accordance with ASC Topic 360,evaluate other long-lived assets, such asincluding property and equipment leasehold improvements and intangibleoperating lease right-of-use assets, subject to amortization, are reviewed for impairment annually orperiodically whenever events or changes in circumstances indicate, in management’s judgment, that the carrying amountvalue of ansuch assets or asset groups may not be recoverable. Recoverability of assets to be heldrecoverable (as described in Note F – Property and used is measured by a comparison of the carrying amount of an assetEquipment and Note M – Leases to the estimated undiscountedConsolidated Financial Statements included in this Form 10-K).
In evaluating long-lived assets for recoverability, we use our best estimate of future cash flows expected to be generated byresult from the asset. use of the asset or asset group and its eventual disposition, where applicable. Estimates of future cash flows include consideration of macroeconomic trends (including the COVID-19 pandemic) such as consumer spending and entity-specific plans and strategies.
If the carrying
amount of an asset exceeds itssuch estimated future cash flows are less than the asset or asset group’s carrying value, an impairment chargeloss is recognized to the extent the asset or asset group’s carrying value exceeds its fair value. Individual assets in an asset group are not written down below their individual fair value. Fair value is estimated considering external market participant assumptions and discounted cash flows, including those based on estimated market rents for operating lease right-of-use assets. It is possible that our conclusions regarding impairment of long-lived assets could change in future periods if, for example, future cash flows do not meet expectations because of unforeseen adverse future economic and market conditions that negatively impact consumer behavior or spending patterns or market rents decrease significantly.
During 2022, no impairment indicators were identified on long-lived assets; therefore, no impairment was recorded.
During 2021, we recorded an impairment loss of $1,432 on long-lived assets. The carrying value of long-lived assets that had an indicator of impairment as of December 31, 2021 was less than 5% of the balance of long-lived assets at December 31, 2021. Therefore, changes to assumptions of future cash flows or market rents would not have materially impacted the impairment charge.
In 2020, due to the impact of the COVID-19 pandemic on the Company’s operations and the decline in the amount by whichretail real estate market, the carrying amountCompany identified indicators of impairment for long-lived assets at certain retail stores. As described in Note G – Goodwill and Intangible Assets and Note M – Leases in this Form 10-K, the asset exceeds the fair valueCompany recorded an aggregate impairment charge of the asset.
Litigation reserves. Estimated amounts for litigation claims that are probable and can be reasonably estimated are recorded as liabilities in our consolidated financial statements. The likelihood of a material change in these estimated reserves would be dependent on new claims as they may arise and the favorable or unfavorable events of a particular litigation. As additional information becomes available, management will assess the potential liability$36,895 related to the pending litigationlong-lived assets at such retail stores.
See Note G – Goodwill and revise its estimates. Such revisionsIntangible Assets and Note M – Leases in management’s estimates of a contingent liability could materially impact our results of operation and financial position.
Contingent payment liabilities. The Company has completed acquisitions that require us to make contingent paymentsthis Form 10-K to the sellers based on the future financial performance of the acquired businesses over a period of from one to six years. The fair value of the contingent payments is estimated using the present value of management's projections of the financial results of the acquired business. Failure to correctly project the financial results of the acquired businesses could materially impact our results of operationsConsolidated Financial Statements included in this Form 10-K for further detail and financial position.impairment charges.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
($ in thousands)
Interest Rate Risk
We do not engage in the trading of market risk sensitive instruments in the normal course of business. Our financing arrangements are subject to variable interest rates, primarily based on the prime rate and LIBOR. An analysisthe BSBY. The terms of our $150,000 asset-based revolving credit agreement (the “Credit Facility”) and our collection agency agreement with Rosenthal & Rosenthal, Inc. can be found in the “LiquidityLiquidity and Capital Resources”Resources section under Part II,of Item 7 and in Note CP – Credit Agreement and Note Q – Factoring Agreement, respectively, to the Consolidated Financial Statements included in this Annual Report on Form 10-K10-K. Because we had no cash borrowings under the caption “Factor Receivable.” Credit Facility as of December 31, 2022, a 10% change in interest rates, with all other variables held constant, would have an immaterial effect on our reported interest expense.
As of December 31, 2017,2022, we held marketable securitiesshort-term investments valued at approximately $93,550,$15,085, which consisted primarilyconsist of corporate bonds and certificates of deposit. These securities are subject to interest rate risk and will decrease in value if interest rates increase. We currently have the ability to hold these securitiesinvestments until maturity.
Foreign Currency Exchange Rate Risk
We face market risk to the extent that our U.S. or foreign operations involve the transaction of business in foreign currencies. Also,In addition, our inventory purchases are primarily done in foreign jurisdictions and inventory purchases may be impacted by fluctuations in the exchange rates between the U.S. dollar and the local currencies of our contract manufacturers, which could have the effect of increasing the cost of goods sold in the future. We manage these risks primarily by denominating these purchases in U.S. dollars. To mitigate the risk of purchases that are denominated in foreign currencies we may enter into forward foreign exchange contracts for terms of no more than two years. A description of our accounting policies for derivative financial instruments is included in Notes ANote B and KNote L to the Consolidated Financial Statements.
During 2017, the Company2022, we entered into forward foreign exchange contracts.contracts with notional amounts totaling $74,869. We performed a sensitivity analysis based on a model that measures the impact of a hypothetical change in foreign currency exchange raterates to determine the effects that market risk exposures may have on the fair values of our forward foreign exchange contracts that were outstanding as of the year-end. As of December 31, 2017,2022, a 10% appreciationincrease or depreciationdecrease of the U.S. dollar against the exchange rates for foreign currencies under forward foreign exchange contracts, with all other variables held constant, would result in a net increase or decrease respectively, in the fair value of our derivatives portfolio of approximately $78.
$6,989.
In addition, we are exposed to translation risk in connection with our foreign operations in Canada, Mexico, Europe, South Africa, China, Taiwan, Israel, Malaysia, and Taiwanthe Middle East because our subsidiaries and joint ventures in these countries utilize the local currency as their functional currency, and those financial results must beare translated into U.S. dollars. As currency exchange rates fluctuate, foreign currency exchange rate translation adjustments reflected in our financial statements with respect to our foreign operations affects the comparability of financial results between yearsyears.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated herein by reference to the consolidated financial statements listed in response to Item 15 of Part IV of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As required by Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the fiscal year covered by this Annual Report on Form 10-K. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were effective as of the end of the fiscal year covered by this Annual Report on Form 10-K.
Management's Annual Report on Internal Control Over Financial Reporting
Management of Steven Madden, Ltd. is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act).
Our internal control over financial reporting is a process designed by, or under the supervision of, our principal executive officer and principal financial officer, and effected by the boardBoard of directors,Directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S.accounting principles generally accepted accounting principles.in the United States of America ("GAAP"). Our internal control over financial reporting includes those policies and procedures that (1) pertain to maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles,GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
With the participation of the Chief Executive Officer and the Chief Financial Officer, our management conducted an evaluation of the effectiveness, as of the end of our fiscal year ended December 31, 2017,2022, of our internal control over financial reporting based on the framework and criteria established in the 2013 Internal Control-Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission.Commission (COSO). Based on this evaluation our management has concluded that, as of December 31, 2017,2022, our internal control over financial reporting was effective.
Our independent registered public accounting firm, EisnerAmperErnst & Young LLP, has audited the Company'sour consolidated financial statements and the effectiveness of the Company'sour internal control over financial reporting as of December 31, 2017.2022. Their attestation report appears in this Annual Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting, as identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 of the Exchange Act, that occurred during the fiscal quarter ended December 31, 2017,2022, which has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
Not applicable.
On February 27, 2018, the Company issued a press release reporting its financial results for the fiscal quarter and fiscal year ended December 31, 2017, a copy of which is attached as Exhibit 99.01 to this Annual Report.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required to be furnished pursuant to this Item will be set forth in our proxy statement for the 20182023 Annual Meeting of Stockholders and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required to be furnished pursuant to this Item will be set forth in our proxy statement for the 20182023 Annual Meeting of Stockholders and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information required to be furnished pursuant to this Item will be set forth in our proxy statement for the 20182023 Annual Meeting of Stockholders and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required to be furnished pursuant to this Item will be set forth in our proxy statement for the 20182023 Annual Meeting of Stockholders and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required to be furnished pursuant to this Item will be set forth in our proxy statement for the 20182023 Annual Meeting of Stockholders and is incorporated herein by reference.
PART IV
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ITEM 15 | ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
(a) Exhibits.
See the Exhibit Index included herein.
(b) Financial Statements and Financial Statements Schedules
See Index to Consolidated Financial Statements included herein.
(b) Exhibits. See
Exhibit Index
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| Equity Purchase Agreement, dated January 30, 2017, among the Company, Schwartz & Benjamin, Inc., B.D.S., Inc., Quinby Ridge Enterprises LLC, DANIELBARBARA Enterprises LLC, the Sellers party thereto, and Daniel Schwartz, as agent for the Sellers (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on January 31, 2017) |
| First Amendment to Equity Purchase Agreement, dated November 21, 2017, to Equity Purchase Agreement, dated January 30, 2017, among the Company, Schwartz & Benjamin, Inc., B.D.S., Inc., Quinby Ridge Enterprises LLC, DANIELBARBARA Enterprises LLC, the Sellers party thereto, and Daniel Schwartz, as agent for the Sellers (incorporated by reference to Exhibit 2.2 to the Company’s Annual Report on Form 10-K for the annual period ended December 31, 2017 filed with the SEC on March 1, 2018) |
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| Letter Agreement dated July 10, 2009 among Rosenthal & Rosenthal, Inc., the Company, Daniel Friedman & Associates, Inc., Diva Acquisition Corp., Steven Madden Retail, Inc., Stevies, Inc., and SML Acquisition Corp. (incorporated by reference to Exhibit 10.7 to the Company's Current Report on Form 8-K filed with the SEC on July 16, 2009) |
| Guarantee dated July 10, 2009 of the Company, Daniel Friedman & Associates, Inc., Diva Acquisition Corp., Steven Madden Retail, Inc., Stevies, Inc., and SML Acquisition Corp. in favor of Rosenthal & Rosenthal, Inc. (incorporated by reference to Exhibit 10.8 to the Company's Current Report on Form 8-K filed with the SEC on July 16, 2009) |
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| Credit Agreement, dated as of July 22, 2020, among Steven Madden, Ltd., the other subsidiary borrowers from time to time party thereto, the lenders from time to time party thereto, and Citizens Bank, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on July 28, 2020) |
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| First Amendment to Credit Agreement, dated as of March 25, 2022, among Steven Madden, Ltd., the other loan parties party thereto, the lenders party thereto, and Citizen Bank, N.A., as administrative agent (which includes the marked Credit Agreement as Annex I thereto) (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on March 31, 2022) |
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| 101 | The following materials from Steven Madden, Ltd.'s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income/(Loss), (iii) the Consolidated Statements of Comprehensive (Loss)/Income, (iv) the Consolidated Statements of Changes in Stockholders' Equity, (v) the Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text.* |
| 104 | Cover Page Interactive Data File, formatted in Inline Extensible Business Reporting Language (iXBRL) with applicable taxonomy extension information contained in Exhibit 101.* |
† Filed herewith.
# Indicates management contract or compensatory plan or arrangement required to be identified pursuant to Item 15(b) of this Annual Report on Form 10-K.
* This exhibit shall not be deemed “filed” for purposes of Section 18 of the exhibit index included herein.
Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any filing, except to the extent the Company specifically incorporates it by reference.
ITEM 16. FORM 10-K SUMMARY
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
DATE: March 1, 2018
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| STEVEN MADDEN, LTD. |
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| /s/ EDWARD R. ROSENFELD |
| Edward R. Rosenfeld |
| Chairman and Chief Executive Officer |
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/s/ ARVIND DHARIAZINE MAZOUZI |
Arvind DhariaZine Mazouzi |
Chief Financial Officer and Chief Accounting Officer |
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned constitutes and appoints Edward R. Rosenfeld and Arvind Dharia,Zine Mazouzi, and each of them, as attorneys-in-fact and agents, with full power of substitution and re-substitution, for and in the name, place and stead of the undersigned, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that each of said attorney-in-fact or substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
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| Signature | Title | Date |
/S/s/ EDWARD R. ROSENFELD | Chairman, Chief Executive Officer and Director | March 1, 20182023 |
| Edward R. Rosenfeld | | |
/S/ ARVIND DHARIAs/ ZINE MAZOUZI | Chief Financial Officer and Chief Accounting Officer | March 1, 20182023 |
Arvind DhariaZine Mazouzi | | |
/S/s/ AMELIA NEWTON VARELA | President and Director | March 1, 20182023 |
| Amelia Newton Varela | | |
/S/s/ PETER MIGLIORINIDAVIS | Director | March 1, 20182023 |
Peter MiglioriniDavis | | |
/S/ RICHARD P. RANDALLs/ AL FERRARA | Director | March 1, 20182023 |
Richard P. RandallAl Ferrara | | |
/S/s/ ROSE LYNCH | Director | March 1, 2023 |
| Rose Lynch | | |
| /s/ MITCHELL S. KLIPPER | Director | March 1, 2023 |
| Mitchell S. Klipper | | |
| /s/ MARÍA TERESA KUMAR | Director | March 1, 2023 |
| María Teresa Kumar | | |
| /s/ PETER MIGLIORINI | Director | March 1, 2023 |
| Peter Migliorini | | |
| /s/ RAVI SACHDEV | Director | March 1, 20182023 |
| Ravi Sachdev | | |
/S/ THOMAS H. SCHWARTZs/ ARIAN SIMONE REED | Director | March 1, 20182023 |
Thomas H. SchwartzArian Simone Reed | | |
/S/ ROSE LYNCHs/ ROBERT SMITH | Director | March 1, 20182023 |
Rose Lynch | | |
/S/ ROBERT SMITH | Director | March 1, 2018 |
| Robert Smith | | |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors and Stockholders of
Steven Madden, Ltd. and subsidiaries
Opinion on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Steven Madden, Ltd. and subsidiaries (the “Company")(the Company) as of December 31, 20172022 and 2016, and2021, the related consolidated statements of income,income/(loss), comprehensive income, stockholders’income/(loss), changes in stockholders' equity and cash flows for each of the three years in the three-year period ended December 31, 2017,2022, and the related notes (collectively referred to as the “financial“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017,2022, based on criteria established in Internal Control - IntegratedControl-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
In(2013 framework) and our report dated March 1, 2023 expressed an unqualified opinion the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2017 and 2016, and the consolidated results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in the Internal Control - Integrated Framework (2013) issued by COSO.
thereon.
Basis for Opinion
The Company’s management is responsible for theseThese financial statements for maintaining effective internal control over financial reporting, and for its assessmentare the responsibility of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting.Company's management. Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. OurWe believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
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| Markdown Allowances | |
| Description of the Matter | As described in Note B to the consolidated financial statements, revenue recognized by the Company is measured as the amount of consideration the Company expects to receive in exchange for transferring goods, which includes estimates for variable consideration. Variable consideration includes markdown allowances which are recorded as a reduction of revenue in the period in which revenue is recognized. Estimating the amount of markdown allowances to be recorded requires management to review several performance indicators, including retailers’ inventory levels, sell-through rates and gross margin levels.
Auditing management's estimate of markdown allowances reserves was complex and judgmental as reserve amounts are sensitive to changes in market or economic conditions (including the effects of the global pandemic), and have a direct, material impact on the amount of revenue recognized by the Company. There is also significant estimation required to establish markdown reserve rates by brand and customer, which are based on the Company's review of periodic negotiations with each customer and the expected performance of the products in the customers' stores. |
| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the Company's process to calculate the markdown allowances, including the consideration of historical experience, actual and forecasted results, and current economic and market conditions (including the effects of the global pandemic).
To test the estimate of markdown allowances, we performed audit procedures that included, among others, assessing methodologies and testing the assumptions regarding periodic negotiations with each customer, which include the application of market and economic conditions to individual customers and the expected performance of the products in the customers' stores, that were used by the Company to calculate the projected markdown allowances to be issued upon settlement. We compared the significant assumptions used by management to current market and economic trends, historical results and other relevant factors. We also examined the historical accuracy of management's estimates and performed sensitivity analyses of significant assumptions to substantively test the changes in the estimate that would result from reasonable changes in the assumptions. |
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2020.
New York, New York
March 1, 2023
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Steven Madden, Ltd.
Opinion on Internal Control Over Financial Reporting
We have audited Steven Madden, Ltd. and subsidiaries’ internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Steven Madden, Ltd. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of income/(loss), comprehensive income/(loss), changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and our report dated March 1, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also includedrisk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audits provideaudit provides a reasonable basis for our opinions.
opinion.
Definition and Limitations of Internal Control overOver Financial Reporting
An entity’sA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. An entity’sA company’s internal control over financial reporting includes those policies and procedures that (i)(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the entity; (ii)company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the entitycompany are being made only in accordance with authorizations of management and directors of the entity;company; and (iii)(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the entity’scompany’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ EisnerAmper LLP
We have served as the Company’s auditor since 1995.
EISNERAMPERErnst & Young LLP
New York, New York
March 1, 2018
2023
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)
| | | | | | | | As of December 31, |
| | | December 31, | | |
| | | 2017 | | 2016 | | |
| (in thousands) | | (in thousands) | | 2022 | | 2021 |
| ASSETS | | |
| | |
| | ASSETS | | | | |
| Current assets: | | |
| | |
| | Current assets: | | | | |
| Cash and cash equivalents | | $ | 181,214 |
| | $ | 126,115 |
| | Cash and cash equivalents | | $ | 274,713 | | | $ | 219,499 | |
| Accounts receivable, net of allowances of $1,973 and $1,622 | | 39,473 |
| | 56,790 |
| | |
| Factor accounts receivable, net of allowances of $26,213 and $20,209 | | 201,436 |
| | 144,168 |
| | |
| Short-term investments | | Short-term investments | | 15,085 | | | 44,037 | |
| Accounts receivable, net of allowances of $7,721 and $12,273 | | Accounts receivable, net of allowances of $7,721 and $12,273 | | 37,937 | | | 26,546 | |
| Factor accounts receivable | | Factor accounts receivable | | 248,228 | | | 364,982 | |
| Inventories | | 110,324 |
| | 119,824 |
| | Inventories | | 228,752 | | | 255,213 | |
| Marketable securities – available for sale | | 64,027 |
| | 39,495 |
| | |
| Prepaid expenses and other current assets | | 19,538 |
| | 26,351 |
| | Prepaid expenses and other current assets | | 22,989 | | | 20,845 | |
| Prepaid taxes | | 29,506 |
| | 15,928 |
| | |
| Income tax receivable and prepaid income taxes | | Income tax receivable and prepaid income taxes | | 15,853 | | | 13,538 | |
| | Total current assets | | 645,518 |
| | 528,671 |
| | Total current assets | | 843,557 | | | 944,660 | |
| Note receivable – related party | | 2,289 |
| | 2,644 |
| | Note receivable – related party | | 401 | | | 794 | |
| Property and equipment, net | | 71,498 |
| | 72,381 |
| | Property and equipment, net | | 40,664 | | | 35,790 | |
| Deferred taxes | | 6,370 |
| | 1,813 |
| | |
| Operating lease right-of-use asset | | Operating lease right-of-use asset | | 90,264 | | | 85,449 | |
| Deferred tax assets | | Deferred tax assets | | 1,755 | | | 4,581 | |
| Deposits and other | | 2,121 |
| | 4,710 |
| | Deposits and other | | 12,070 | | | 4,180 | |
| Marketable securities – available for sale | | 29,523 |
| | 70,559 |
| | |
| | Goodwill – net | | 148,538 |
| | 135,711 |
| | Goodwill – net | | 168,085 | | | 167,995 | |
| Intangibles – net | | 151,304 |
| | 144,386 |
| | Intangibles – net | | 101,192 | | | 112,093 | |
| Total Assets | | $ | 1,057,161 |
| | $ | 960,875 |
| | Total Assets | | $ | 1,257,988 | | | $ | 1,355,542 | |
| LIABILITIES | | |
| | |
| | LIABILITIES | | | | |
| Current liabilities: | | |
| | |
| | Current liabilities: | | | | |
| Accounts payable | | $ | 66,955 |
| | $ | 80,584 |
| | Accounts payable | | $ | 130,542 | | | $ | 136,766 | |
| Accrued expenses | | 120,624 |
| | 86,635 |
| | Accrued expenses | | 138,523 | | | 243,163 | |
| Operating leases - current portion | | Operating leases - current portion | | 29,499 | | | 30,759 | |
| Income taxes payable | | 1,566 |
| | — |
| | Income taxes payable | | 9,403 | | | 4,522 | |
| Contingent payment liability – current portion | | 7,000 |
| | 7,948 |
| | Contingent payment liability – current portion | | 1,153 | | | 5,109 | |
| Accrued incentive compensation | | 10,467 |
| | 7,960 |
| | Accrued incentive compensation | | 11,788 | | | 14,871 | |
| Total current liabilities | | 206,612 |
| | 183,127 |
| | Total current liabilities | | 320,908 | | | 435,190 | |
| Contingent payment liability | | 3,000 |
| | — |
| | Contingent payment liability | | — | | | 6,960 | |
| Deferred rent | | 16,033 |
| | 14,578 |
| | |
| Deferred taxes | | 3,602 |
| | 19,466 |
| | |
| | Operating leases - long-term portion | | Operating leases - long-term portion | | 79,128 | | | 80,072 | |
| Deferred tax liabilities | | Deferred tax liabilities | | 3,923 | | | 3,378 | |
| Other liabilities | | 18,982 |
| | 2,632 |
| | Other liabilities | | 10,166 | | | 9,404 | |
| Total Liabilities | | 248,229 |
| | 219,803 |
| | Total Liabilities | | 414,125 | | | 535,004 | |
| Commitments, contingencies and other | |
|
| |
|
| | |
| Commitments, contingencies and other (Note O) | | Commitments, contingencies and other (Note O) | | | | |
| STOCKHOLDERS’ EQUITY | | |
| | |
| | STOCKHOLDERS’ EQUITY | | | | |
| Preferred stock – $.0001 par value, 5,000 shares authorized; none issued; Series A Junior Participating preferred stock – $.0001 par value, 60 shares authorized; none issued | | — |
| | — |
| | |
| Common stock – $.0001 par value, 135,000 shares authorized, 87,306 and 86,417 shares issued, 58,698 and 60,410 shares outstanding | | 6 |
| | 6 |
| | |
| Preferred stock – $0.0001 par value, 5,000 shares authorized; none issued; Series A Junior Participating preferred stock – $0.0001 par value, 60 shares authorized; none issued | | Preferred stock – $0.0001 par value, 5,000 shares authorized; none issued; Series A Junior Participating preferred stock – $0.0001 par value, 60 shares authorized; none issued | | — | | | — | |
| Common stock – $0.0001 par value, 245,000 shares authorized, 134,456 and 134,029 shares issued, 76,796 and 80,557 shares outstanding | | Common stock – $0.0001 par value, 245,000 shares authorized, 134,456 and 134,029 shares issued, 76,796 and 80,557 shares outstanding | | 8 | | | 8 | |
| Additional paid-in capital | | 390,723 |
| | 353,443 |
| | Additional paid-in capital | | 520,441 | | | 495,999 | |
| Retained earnings | | 1,135,701 |
| | 1,017,753 |
| | Retained earnings | | 1,571,123 | | | 1,421,067 | |
| Accumulated other comprehensive loss | | (25,613 | ) | | (31,751 | ) | | Accumulated other comprehensive loss | | (35,709) | | | (29,544) | |
| Treasury stock – 28,608 and 26,007 shares at cost | | (697,996 | ) | | (598,584 | ) | | |
| Treasury stock – 57,660 and 53,472 shares at cost | | Treasury stock – 57,660 and 53,472 shares at cost | | (1,224,310) | | | (1,075,432) | |
| Total Steven Madden, Ltd. stockholders’ equity | | 802,821 |
| | 740,867 |
| | Total Steven Madden, Ltd. stockholders’ equity | | 831,553 | | | 812,098 | |
| Non-controlling interests | | 6,111 |
| | 205 |
| | |
| Noncontrolling interest | | Noncontrolling interest | | 12,310 | | | 8,440 | |
| Total stockholders’ equity | | 808,932 |
| | 741,072 |
| | Total stockholders’ equity | | 843,863 | | | 820,538 | |
| Total Liabilities and Stockholders’ Equity | | $ | 1,057,161 |
| | $ | 960,875 |
| | Total Liabilities and Stockholders’ Equity | | $ | 1,257,988 | | | $ | 1,355,542 | |
See accompanying notes to consolidated financial statements
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Consolidated Statements of IncomeIncome/(Loss)
(in thousands, except per share data)
|
| | | | | | | | | | | | |
| | | Years Ended December 31, |
| | | 2017 | | 2016 | | 2015 |
| Net sales | | $ | 1,546,098 |
| | $ | 1,399,551 |
| | $ | 1,405,239 |
|
| Cost of sales | | 968,357 |
| | 877,568 |
| | 904,747 |
|
| Gross profit | | 577,741 |
| | 521,983 |
| | 500,492 |
|
| | | | | | | |
| Commission and licensing fee income – net | | 14,259 |
| | 11,788 |
| | 16,565 |
|
| Operating expenses | | (421,216 | ) | | (364,595 | ) | | (342,364 | ) |
| Impairment charges | | (1,000 | ) | | — |
| | (3,045 | ) |
| Income from operations | | 169,784 |
| | 169,176 |
| | 171,648 |
|
| Interest income (expense) - net | | 2,548 |
| | 2,488 |
| | 2,191 |
|
| Other (expense) income - net | | (5 | ) | | (664 | ) | | (1,373 | ) |
| Income before provision for income taxes | | 172,327 |
| | 171,000 |
| | 172,466 |
|
| Provision for income taxes | | 53,189 |
| | 49,726 |
| | 58,811 |
|
| Net income | | 119,138 |
| | 121,274 |
| | 113,655 |
|
| Net income attributable to non-controlling interests | | (1,190 | ) | | (363 | ) | | (717 | ) |
| Net income attributable to Steven Madden, Ltd. | | $ | 117,948 |
| | $ | 120,911 |
| | $ | 112,938 |
|
| | | | | | | |
| | | | | | | |
| Basic net income per share | | $ | 2.14 |
| | $ | 2.12 |
| | $ | 1.91 |
|
| | | | | | | |
| Diluted net income per share | | $ | 2.04 |
| | $ | 2.03 |
| | $ | 1.85 |
|
| | | | | | | |
| Basic weighted average common shares outstanding | | 55,157 |
| | 57,109 |
| | 58,997 |
|
| Effect of dilutive securities – options/restricted stock | | 2,673 |
| | 2,447 |
| | 2,145 |
|
| Diluted weighted average common shares outstanding | | 57,830 |
| | 59,556 |
| | 61,142 |
|
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in thousands except share data) | | 2022 | | 2021 | | 2020 |
| Net sales | | $ | 2,111,296 | | | $ | 1,853,902 | | | $ | 1,188,943 | |
| Commission and licensing fee income | | 10,713 | | | 12,240 | | | 12,871 | |
| Total revenue | | 2,122,009 | | | 1,866,142 | | | 1,201,814 | |
| Cost of sales (exclusive of depreciation and amortization) | | 1,248,173 | | | 1,098,645 | | | 737,273 | |
| Gross profit | | 873,836 | | | 767,497 | | | 464,541 | |
| Operating expenses | | 592,192 | | | 519,848 | | | 414,978 | |
| Impairment of intangibles | | — | | | 2,620 | | | 44,273 | |
| Impairment of lease right-of-use assets and fixed assets | | — | | | 1,432 | | | 36,895 | |
| Income/(loss) from operations | | 281,644 | | | 243,597 | | | (31,605) | |
| Interest and other income/(expense) - net | | 676 | | | (1,529) | | | 1,620 | |
| Income/(loss) before provision/(benefit) for income taxes | | 282,320 | | | 242,068 | | | (29,985) | |
| Provision/(benefit) for income taxes | | 65,103 | | | 49,609 | | | (11,704) | |
| Net income/(loss) | | 217,217 | | | 192,459 | | | (18,281) | |
| Less: net income attributable to noncontrolling interest | | 1,156 | | | 1,781 | | | 116 | |
| Net income/(loss) attributable to Steven Madden, Ltd. | | $ | 216,061 | | | $ | 190,678 | | | $ | (18,397) | |
| | | | | | |
| | | | | | |
| Basic net income/(loss) per share | | $ | 2.84 | | | $ | 2.43 | | | $ | (0.23) | |
| | | | | | |
| Diluted net income/(loss) per share | | $ | 2.77 | | | $ | 2.34 | | | $ | (0.23) | |
| | | | | | |
| Basic weighted average common shares outstanding | | 76,021 | | | 78,442 | | | 78,635 | |
| Effect of dilutive securities – options/restricted stock | | 2,048 | | | 3,186 | | | — | |
| Diluted weighted average common shares outstanding | | 78,069 | | | 81,628 | | | 78,635 | |
| | | | | | |
| Cash dividends declared per common share | | $ | 0.84 | | | $ | 0.60 | | | $ | 0.15 | |
See accompanying notes to consolidated financial statements
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Consolidated Statements of Comprehensive IncomeIncome/(Loss)
(in thousands)
|
| | | | | | | | | | | | |
| | | 2017 |
| | | Pre-tax amounts | | Tax benefit/(expense) | | After-tax amounts |
| Net income | | | | | | $ | 119,138 |
|
| Other comprehensive income (loss): | | | | | | |
| Foreign currency translation adjustment | | $ | 6,836 |
| | — |
| | 6,836 |
|
| (Loss) on cash flow hedging derivatives | | (1,282 | ) | | 468 |
| | (814 | ) |
| Unrealized gain on marketable securities | | 183 |
| | (67 | ) | | 116 |
|
| Total other comprehensive income | | $ | 5,737 |
| | $ | 401 |
| | 6,138 |
|
| | | | | | | |
| Comprehensive income | | | |
|
| | 125,276 |
|
| Comprehensive income attributable to non-controlling interests | | | | | | (1,190 | ) |
| Comprehensive income attributable to Steven Madden, Ltd. | | | | | | $ | 124,086 |
|
| | | | | | | |
|
| 2016 |
| | | Pre-tax amounts | | Tax benefit/(expense) | | After-tax amounts |
| Net income | | | | | | $ | 121,274 |
|
| Other comprehensive income (loss): | | | | | | |
| Foreign currency translation adjustment | | $ | (2,147 | ) | | $ | — |
| | (2,147 | ) |
| Gain on cash flow hedging derivatives | | 797 |
| | (291 | ) | | 506 |
|
| Unrealized gain on marketable securities | | 2,052 |
| | (749 | ) | | 1,303 |
|
| Total other comprehensive (loss) | | $ | 702 |
| | $ | (1,040 | ) | | (338 | ) |
| | | | | | | |
| Comprehensive income | | | | | | 120,936 |
|
| Comprehensive income attributable to non-controlling interests | | | | | | (363 | ) |
| Comprehensive income attributable to Steven Madden, Ltd. | | | | | | $ | 120,573 |
|
| | | | | | | |
| | | 2015 |
| | | Pre-tax amounts | | Tax benefit/(expense) | | After-tax amounts |
| Net income | | | | | | $ | 113,655 |
|
| Other comprehensive income (loss): | | | | | | |
| Foreign currency translation adjustment | | $ | (18,734 | ) | | $ | — |
| | (18,734 | ) |
| Gain on cash flow hedging derivatives | | 1,962 |
| | (716 | ) | | 1,246 |
|
| Unrealized (loss) on marketable securities | | (1,847 | ) | | 674 |
| | (1,173 | ) |
| Total other comprehensive (loss) | | $ | (18,619 | ) | | $ | (42 | ) | | (18,661 | ) |
| | | | | | | |
| Comprehensive income | | | | | | 94,994 |
|
| Comprehensive income attributable to non-controlling interests | | | | | | (717 | ) |
| Comprehensive income attributable to Steven Madden, Ltd. | | | | | | $ | 94,277 |
|
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2022 |
| (in thousands) | | Pre-tax amounts | | Tax benefit | | After-tax amounts |
| Net income | | | | | | $ | 217,217 | |
| Other comprehensive (loss): | | | | | | |
| Foreign currency translation adjustment | | $ | (6,681) | | | $ | — | | | (6,681) | |
| (Loss) on cash flow hedging derivatives | | (788) | | | 239 | | | (549) | |
| Total other comprehensive (loss) | | $ | (7,469) | | | $ | 239 | | | (7,230) | |
| | | | | | |
| Comprehensive income | | | | | | 209,987 | |
| Less: comprehensive income attributable to noncontrolling interests | | | | | | 91 | |
| Comprehensive income attributable to Steven Madden, Ltd. | | | | | | $ | 209,896 | |
| | | | | | |
| | Year Ended December 31, 2021 |
| (in thousands) | | Pre-tax amounts | | Tax expense | | After-tax amounts |
| Net income | | | | | | $ | 192,459 | |
| Other comprehensive income: | | | | | | |
| Foreign currency translation adjustment | | $ | (991) | | | $ | — | | | (991) | |
| Gain on cash flow hedging derivatives | | 1,451 | | | (375) | | | 1,076 | |
| Total other comprehensive income | | 460 | | | (375) | | | 85 | |
| | | | | | |
| Comprehensive income | | | | | | 192,544 | |
| Less: comprehensive income attributable to noncontrolling interests | | | | | | 2,246 | |
| Comprehensive income attributable to Steven Madden, Ltd. | | | | | | $ | 190,298 | |
| | | | | | |
| | Year Ended December 31, 2020 |
| (in thousands) | | Pre-tax amounts | | Tax benefit | | After-tax amounts |
| Net loss | | | | | | $ | (18,281) | |
| Other comprehensive income: | | | | | | |
| Foreign currency translation adjustment | | $ | 2,551 | | | $ | — | | | 2,551 | |
| (Loss) on cash flow hedging derivatives | | (526) | | | 134 | | | (392) | |
| | | | | | |
| Total other comprehensive income | | 2,025 | | | 134 | | | 2,159 | |
| | | | | | |
| Comprehensive loss | | | | | | (16,122) | |
| Less: comprehensive income attributable to noncontrolling interests | | | | | | 999 | |
| Comprehensive loss attributable to Steven Madden, Ltd. | | | | | | $ | (17,121) | |
See accompanying notes to consolidated financial statements
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive (Loss) | | Treasury Stock | | Non-Controlling Interest | | Total Stockholders' Equity |
| (in thousands except share data) | | Shares | | Amount | Shares | | Amount |
| Balance - December 31, 2019 | | 83,520 | | | $ | 6 | | | $ | 454,217 | | | $ | 1,310,406 | | | $ | (30,440) | | | 49,234 | | | $ | (905,688) | | | $ | 12,723 | | | $ | 841,224 | |
| Share repurchases and net settlement of awards under stock plan | | (1,397) | | | — | | | — | | | — | | | — | | | 1,397 | | | (46,583) | | | — | | | (46,583) | |
| Exercise of stock options | | 80 | | | 2 | | | 1,607 | | | — | | | — | | | — | | | — | | | — | | | 1,609 | |
| Issuance of restricted stock, net of forfeitures | | 413 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Stock-based compensation | | — | | | — | | | 22,639 | | | — | | | — | | | — | | | — | | | — | | | 22,639 | |
| Foreign currency translation adjustment | | — | | | — | | | — | | | — | | | 1,668 | | | — | | | — | | | 883 | | | 2,551 | |
| | | | | | | | | | | | | | | | | | |
| Cash flow hedge (net of tax benefit of $134) | | — | | | — | | | — | | | — | | | (392) | | | — | | | — | | | — | | | (392) | |
| Dividends on common stock ($0.15 per share) | | — | | | — | | | — | | | (12,459) | | | — | | | — | | | — | | | — | | | (12,459) | |
| | | | | | | | | | | | | | | | | | |
| Investment of noncontrolling interest | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 359 | | | 359 | |
| Acquisition of noncontrolling interest | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (298) | | | (298) | |
| Net (loss)/income | | — | | | — | | | — | | | (18,397) | | | — | | | — | | | — | | | 116 | | | (18,281) | |
| Balance - December 31, 2020 | | 82,616 | | | 8 | | | 478,463 | | | 1,279,550 | | | (29,164) | | | 50,631 | | | (952,271) | | | 13,783 | | | 790,369 | |
| Share repurchases and net settlement of awards under stock plan | | (2,841) | | | — | | | — | | | — | | | — | | | 2,841 | | | (123,161) | | | — | | | (123,161) | |
| Exercise of stock options | | 411 | | | — | | | 9,732 | | | — | | | — | | | — | | | — | | | — | | | 9,732 | |
| Issuance of restricted stock, net of forfeitures | | 371 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Stock-based compensation | | — | | | — | | | 22,278 | | | — | | | — | | | — | | | — | | | — | | | 22,278 | |
| Foreign currency translation adjustment | | — | | | — | | | — | | | — | | | (1,456) | | | — | | | — | | | 465 | | | (991) | |
| Cash flow hedge (net of tax expense of $375) | | — | | | — | | | — | | | — | | | 1,076 | | | — | | | — | | | — | | | 1,076 | |
| Dividends on common stock ($0.60 per share) | | — | | | — | | | — | | | (49,161) | | | — | | | — | | | — | | | — | | | (49,161) | |
| Investment of noncontrolling interest | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (3,121) | | | (3,121) | |
| Acquisition adjustment of noncontrolling interest | | — | | | — | | | (14,474) | | | — | | | — | | | — | | | — | | | (4,468) | | | (18,942) | |
| Net income | | — | | | — | | | — | | | 190,678 | | | — | | | — | | | — | | | 1,781 | | | 192,459 | |
| Balance - December 31, 2021 | | 80,557 | | | 8 | | | 495,999 | | | 1,421,067 | | | (29,544) | | | 53,472 | | | (1,075,432) | | | 8,440 | | | 820,538 | |
| Share repurchases and net settlement of awards under stock plan | | (4,188) | | | — | | | — | | | — | | | — | | | 4,188 | | | (148,878) | | | — | | | (148,878) | |
| Exercise of stock options | | 24 | | | — | | | 602 | | | — | | | — | | | — | | | — | | | — | | | 602 | |
| Issuance of restricted stock, net of forfeitures | | 403 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Stock-based compensation | | — | | | — | | | 24,396 | | | — | | | — | | | — | | | — | | | — | | | 24,396 | |
| Foreign currency translation adjustment | | — | | | — | | | — | | | — | | | (5,616) | | | — | | | — | | | (1,065) | | | (6,681) | |
| Cash flow hedge (net of tax benefit of $239) | | — | | | — | | | — | | | — | | | (549) | | | — | | | — | | | — | | | (549) | |
| Dividends on common stock ($0.84 per share) | | — | | | — | | | — | | | (66,005) | | | — | | | — | | | — | | | — | | | (66,005) | |
| Investment of noncontrolling interest | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 2,500 | | | 2,500 | |
| Distributions to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (294) | | | (294) | |
| Sale of minority ownership of joint venture | | — | | | — | | | (556) | | | — | | | — | | | — | | | — | | | 1,573 | | | 1,017 | |
| Net income | | — | | | — | | | — | | | 216,061 | | | — | | | — | | | — | | | 1,156 | | | 217,217 | |
| Balance - December 31, 2022 | | 76,796 | | | $ | 8 | | | $ | 520,441 | | | $ | 1,571,123 | | | $ | (35,709) | | | 57,660 | | | $ | (1,224,310) | | | $ | 12,310 | | | $ | 843,863 | |
(in thousands)
|
| | | | | | | | | | | | | | | |
| | | Common Stock | | Additional Paid‑in Capital | | Retained Earnings |
| | | Shares | | Amount | |
| Balance - December 31, 2014 | | 63,625 |
| | $ | 6 |
| | $ | 275,039 |
| | $ | 783,904 |
|
| Share repurchases | | (3,704 | ) | | — |
| | — |
| | — |
|
| Exercise of stock options | | 1,460 |
| | — |
| | 21,301 |
| | — |
|
| Tax benefit from stock-based compensation | | — |
| | — |
| | 10,510 |
| | — |
|
| Issuance of restricted stock | | 312 |
| | — |
| | — |
| | — |
|
| Stock-based compensation | | — |
| | — |
| | 18,698 |
| | — |
|
| Foreign currency translation adjustment | | — |
| | — |
| | — |
| | — |
|
| Unrealized holding (loss) on securities (net of tax benefit of $674) | | — |
| | — |
| | — |
| | — |
|
| Cash flow hedge (net of tax expense of $716) | | — |
| | — |
| | — |
| | — |
|
| Distributions to non-controlling interests, net | | — |
| | — |
| | — |
| | — |
|
| Non-controlling investment in JV | | — |
| | — |
| | — |
| | — |
|
| Net income | | — |
| | — |
| | — |
| | 112,938 |
|
| Balance - December 31, 2015 | | 61,693 |
| | 6 |
| | 325,548 |
| | 896,842 |
|
| Share repurchases | | (2,437 | ) | | — |
| | — |
| | — |
|
| Exercise of stock options | | 746 |
| | — |
| | 10,713 |
| | — |
|
| Issuance of restricted stock | | 408 |
| | — |
| | — |
| | — |
|
| Stock-based compensation | | — |
| | — |
| | 19,509 |
| | — |
|
| Foreign currency translation adjustment | | — |
| | — |
| | — |
| | — |
|
| Unrealized holding gain on securities (net of tax expense of $749) | | — |
| | — |
| | — |
| | — |
|
| Cash flow hedge (net of tax expense of $291) | | — |
| | — |
| | — |
| | — |
|
| Distributions to non-controlling interests, net | | — |
| | — |
| | — |
| | — |
|
| Acquisition of Minority Interest (net of tax benefit of $1,432) | | — |
| | — |
| | (2,327 | ) | | — |
|
| Net income | | — |
| | — |
| | — |
| | 120,911 |
|
| Balance - December 31, 2016 | | 60,410 |
| | 6 |
| | 353,443 |
| | 1,017,753 |
|
| Share repurchases | | (2,601 | ) | | — |
| | — |
| | — |
|
| Exercise of stock options | | 655 |
| | — |
| | 16,433 |
| | — |
|
| Issuance of restricted stock | | 234 |
| | — |
| | — |
| | — |
|
| Stock-based compensation | | — |
| | — |
| | 20,847 |
| | — |
|
| Foreign currency translation adjustment | | — |
| | — |
| | — |
| | — |
|
| Unrealized holding gain on securities (net of tax expense of $67) | | — |
| | — |
| | — |
| | — |
|
| Cash flow hedge (net of tax benefit of $468) | | — |
| | — |
| | — |
| | — |
|
| Non-controlling investment in JV | | — |
| | — |
| | — |
| | — |
|
| Net income | | — |
| | — |
| | — |
| | 117,948 |
|
| Balance - December 31, 2017 | | 58,698 |
| | $ | 6 |
| | $ | 390,723 |
| | $ | 1,135,701 |
|
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity (Continued)
(in thousands)
|
| | | | | | | | | | | | | | | | | | | |
| | | Accumulated Other Comprehensive Gain (Loss) | | Treasury Stock | | Non-controlling interest | | Total Stockholders' Equity |
| | Shares | | Amount | |
| Balance - December 31, 2014 | | $ | (12,752 | ) | | 19,866 |
| | $ | (376,942 | ) | | $ | 274 |
| | $ | 669,529 |
|
| Share repurchases | | — |
| | 3,704 |
| | (135,637 | ) | | — |
| | (135,637 | ) |
| Exercise of stock options | | — |
| | — |
| | — |
| | — |
| | 21,301 |
|
| Tax benefit from stock-based compensation | | — |
| | — |
| | — |
| | — |
| | 10,510 |
|
| Issuance of restricted stock | | — |
| | — |
| | — |
| | — |
| | — |
|
| Stock-based compensation | | — |
| | — |
| | — |
| | — |
| | 18,698 |
|
| Foreign currency translation adjustment | | (18,734 | ) | | — |
| | — |
| | — |
| | (18,734 | ) |
| Unrealized holding (loss) on securities (net of tax benefit of $674) | | (1,173 | ) | | — |
| | — |
| | — |
| | (1,173 | ) |
| Cash flow hedge (net of tax expense of $716) | | 1,246 |
| | — |
| | — |
| | — |
| | 1,246 |
|
| Distributions to non-controlling interests, net | | — |
| | — |
| | — |
| | (732 | ) | | (732 | ) |
| Non-controlling investment in JV | | — |
| | — |
| | — |
| | — |
| | — |
|
| Net income | | — |
| | — |
| | — |
| | 717 |
| | 113,655 |
|
| Balance - December 31, 2015 | | (31,413 | ) | | 23,570 |
| | (512,579 | ) | | 259 |
| | 678,663 |
|
| Share repurchases | | — |
| | 2,437 |
| | (86,005 | ) | | — |
| | (86,005 | ) |
| Exercise of stock options | | — |
| | — |
| | — |
| | — |
| | 10,713 |
|
| Issuance of restricted stock | | — |
| | — |
| | — |
| | — |
| | — |
|
| Stock-based compensation | | | | — |
| | — |
| | — |
| | 19,509 |
|
| Foreign currency translation adjustment | | (2,147 | ) | | — |
| | — |
| | — |
| | (2,147 | ) |
| Unrealized holding gain on securities (net of tax expense of $749) | | 1,303 |
| | — |
| | — |
| | — |
| | 1,303 |
|
| Cash flow hedge (net of tax expense of $291) | | 506 |
| | — |
| | — |
| | — |
| | 506 |
|
| Distributions to non-controlling interests, net | | — |
| | — |
| | — |
| | (417 | ) | | (417 | ) |
| Acquisition of Minority Interest (net of tax benefit of $1,432) | | — |
| | — |
| | — |
| | — |
| | (2,327 | ) |
| Net income | | — |
| | — |
| | — |
| | 363 |
| | 121,274 |
|
| Balance - December 31, 2016 | | (31,751 | ) | | 26,007 |
| | (598,584 | ) | | 205 |
| | 741,072 |
|
| Share repurchases | | — |
| | 2,601 |
| | (99,412 | ) | | — |
| | (99,412 | ) |
| Exercise of stock options | | — |
| | — |
| | — |
| | — |
| | 16,433 |
|
| Issuance of restricted stock | | — |
| | — |
| | — |
| | — |
| | — |
|
| Stock-based compensation | | | | — |
| | — |
| | — |
| | 20,847 |
|
| Foreign currency translation adjustment | | 6,836 |
| | — |
| | — |
| | — |
| | 6,836 |
|
| Unrealized holding gain on securities (net of tax expense of $67) | | 116 |
| | — |
| | — |
| | — |
| | 116 |
|
| Cash flow hedge (net of tax benefit of $468) | | (814 | ) | | — |
| | — |
| | — |
| | (814 | ) |
| Non-controlling investment in JV | | — |
| | — |
| | — |
| | 4,716 |
| | 4,716 |
|
| Net income | | — |
| | — |
| | — |
| | 1,190 |
| | 119,138 |
|
| Balance - December 31, 2017 | | $ | (25,613 | ) | | 28,608 |
| | $ | (697,996 | ) | | $ | 6,111 |
| | $ | 808,932 |
|
See accompanying notes to consolidated financial statements
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands) |
| | | | | | | | | | | | |
| | | Years Ended December 31, |
| | | 2017 | | 2016 | | 2015 |
| Cash flows from operating activities: | | |
| | |
| | |
| Net income | | $ | 119,138 |
| | $ | 121,274 |
| | $ | 113,655 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
| Stock-based compensation | | 20,847 |
| | 19,509 |
| | 18,698 |
|
| Tax benefit from stock-based compensation | | — |
| | — |
| | (10,510 | ) |
| Depreciation and amortization | | 21,389 |
| | 21,102 |
| | 20,757 |
|
| Loss on disposal of fixed assets | | 1,455 |
| | 652 |
| | 1,780 |
|
| Impairment charges | | 1,000 |
| | — |
| | 3,045 |
|
| Deferred taxes | | (19,274 | ) | | (6,588 | ) | | 7,271 |
|
| Accrued interest on note receivable – related party | | (54 | ) | | (63 | ) | | (71 | ) |
| Deferred rent expense and other liabilities | | 1,455 |
| | 2,565 |
| | 440 |
|
| Realized loss (gain) on sale of marketable securities | | (5 | ) | | 661 |
| | (67 | ) |
| Change in fair value of contingent liability | | (11,206 | ) | | (425 | ) | | (5,576 | ) |
| Bad debt expense from bankruptcy | | 5,470 |
| | — |
| | — |
|
| Changes, net of acquisitions, in: | | | |
|
| |
|
|
| Accounts receivable | | 22,683 |
| | (13,617 | ) | | (11,071 | ) |
| Factor accounts receivable | | (57,268 | ) | | 11,043 |
| | 7,281 |
|
| Notes receivable - related party | | 409 |
| | 409 |
| | 409 |
|
| Inventories | | 21,135 |
| | (17,744 | ) | | (9,403 | ) |
| Prepaid expenses, prepaid taxes, deposits and other | | 2,403 |
| | (3,461 | ) | | 4,784 |
|
| Accounts payable and accrued expenses | | 9,501 |
| | 15,324 |
| | (8,643 | ) |
| Accrued incentive compensation | | 2,507 |
| | 1,819 |
| | 468 |
|
| Other liabilities | | 16,350 |
| | 1,144 |
| | 2,716 |
|
| Net cash provided by operating activities | | 157,935 |
| | 153,604 |
| | 135,963 |
|
| | | | | | | |
| Cash flows from investing activities: | | |
| | |
| | |
| Capital expenditures | | (14,775 | ) | | (15,897 | ) | | (19,459 | ) |
| Purchases of marketable securities | | (61,209 | ) | | (40,451 | ) | | (48,891 | ) |
| Repayment of notes receivable | | 221 |
| | 249 |
| | 466 |
|
| Maturity/sale of marketable securities | | 79,141 |
| | 52,215 |
| | 43,353 |
|
| Acquisitions, net of cash acquired | | (16,795 | ) | | — |
| | (9,129 | ) |
| Net cash used in investing activities | | (13,417 | ) | | (3,884 | ) | | (33,660 | ) |
| | | | | | | |
| Cash flows from financing activities: | | |
| | |
| | |
| Proceeds from exercise of stock options | | 16,433 |
| | 10,713 |
| | 21,301 |
|
| Purchase of noncontrolling interest | | — |
| | (3,759 | ) | | — |
|
| Tax benefit from the exercise of options | | — |
| | — |
| | 10,510 |
|
| Payment of contingent liability | | (7,359 | ) | | (16,402 | ) | | (6,270 | ) |
| Common stock purchased for treasury | | (99,412 | ) | | (86,005 | ) | | (135,637 | ) |
| Net cash used by financing activities | | (90,338 | ) | | (95,453 | ) | | (110,096 | ) |
| Effect of exchange rate changes on cash and cash equivalents | | 919 |
| | (566 | ) | | (1,243 | ) |
| Net increase (decrease) in cash and cash equivalents | | 55,099 |
| | 53,701 |
| | (9,036 | ) |
| Cash and cash equivalents – beginning of year | | 126,115 |
| | 72,414 |
| | 81,450 |
|
| Cash and cash equivalents – end of year | | $ | 181,214 |
| | $ | 126,115 |
| | $ | 72,414 |
|
| Supplemental disclosures of cash flow information: | | | | | | |
| Cash paid during the year for: | | | | | | |
| Interest | | $ | 24 |
| | $ | 222 |
| | $ | 328 |
|
| Income taxes | | $ | 61,979 |
| | $ | 55,384 |
| | $ | 39,424 |
|
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in thousands) | | 2022 | | 2021 | | 2020 |
| Cash flows from operating activities: | | | | | | |
| Net income/(loss) | | $ | 217,217 | | | $ | 192,459 | | | $ | (18,281) | |
| Adjustments to reconcile net income/(loss) to net cash provided by operating activities | | | | | | |
| Stock-based compensation | | 24,396 | | | 22,278 | | | 22,639 | |
| | | | | | |
| Depreciation and amortization | | 20,576 | | | 15,208 | | | 17,360 | |
| Loss on disposal of fixed assets | | 11 | | | 526 | | | 561 | |
| Impairment of intangibles | | — | | | 2,620 | | | 44,273 | |
| Impairment of lease right-of-use asset and fixed assets | | — | | | 1,432 | | | 36,895 | |
| Deferred taxes | | 3,601 | | | 1,280 | | | (8,353) | |
| Accrued interest on note receivable – related party | | (16) | | | (23) | | | (31) | |
| Note receivable - related party | | 409 | | | 409 | | | 409 | |
| | | | | | |
| Change in valuation of contingent liability | | (5,807) | | | 11,862 | | | (8,917) | |
| Gain on sale of trademark | | — | | | (8,000) | | | — | |
| | | | | | |
| Other operating activities | | (2,716) | | | — | | | — | |
| Recovery of receivables, related to the Payless ShoeSource bankruptcy | | — | | | (919) | | | — | |
| Changes, net of acquisitions, in: | | | | | | |
| Accounts receivable | | (9,683) | | | (583) | | | 13,122 | |
| Factor accounts receivable | | 116,141 | | | (112,311) | | | (36,200) | |
| Inventories | | 29,071 | | | (153,793) | | | 35,476 | |
| Prepaid expenses, income tax receivables, prepaid taxes, and other assets | | (4,205) | | | (1,899) | | | (10,129) | |
| Accounts payable and accrued expenses | | (108,788) | | | 185,741 | | | (34,207) | |
| Accrued incentive compensation | | (3,083) | | | 10,998 | | | (7,061) | |
| Leases and other liabilities | | (8,902) | | | (7,822) | | | (3,350) | |
| Payment of contingent consideration | | (339) | | | — | | | — | |
| Net cash provided by operating activities | | 267,883 | | | 159,463 | | | 44,206 | |
| | | | | | |
| Cash flows from investing activities: | | | | | | |
| Capital expenditures | | (16,351) | | | (6,608) | | | (6,562) | |
| Purchases of short-term investments | | (45,130) | | | (68,471) | | | (73,792) | |
| | | | | | |
| Maturity/sale of marketable securities and short-term investments | | 73,998 | | | 63,867 | | | 75,470 | |
| Purchase/sale of a trademark | | (2,000) | | | 8,000 | | | — | |
| | | | | | |
| Other investing activities | | (5,000) | | | — | | | — | |
| Net cash provided by/(used in) investing activities | | 5,517 | | | (3,212) | | | (4,884) | |
| | | | | | |
| Cash flows from financing activities: | | | | | | |
| Proceeds from exercise of stock options | | 602 | | | 9,732 | | | 1,609 | |
| Investment of noncontrolling interest | | 2,500 | | | — | | | 359 | |
| | | | | | |
| Acquisition of incremental ownership of joint ventures | | — | | | (18,942) | | | — | |
| Distributions to noncontrolling interest earnings | | (294) | | | (3,121) | | | — | |
| Sale of minority interest of a subsidiary | | 1,017 | | | — | | | — | |
| Common stock purchased for treasury | | (148,878) | | | (123,161) | | | (46,583) | |
| Cash dividends paid on common stock | | (66,005) | | | (49,161) | | | (12,459) | |
| Payment of contingent consideration | | (4,770) | | | — | | | — | |
| Advances from factor | | — | | | — | | | 176,784 | |
| Repayments of advances from factor | | — | | | — | | | (176,784) | |
| Net cash used in financing activities | | (215,828) | | | (184,653) | | | (57,074) | |
| Effect of exchange rate changes on cash and cash equivalents | | (2,358) | | | 37 | | | 1,515 | |
| Net increase/(decrease) in cash, cash equivalents | | 55,214 | | | (28,365) | | | (16,237) | |
| Cash and cash equivalents – beginning of year | | 219,499 | | | 247,864 | | | 264,101 | |
| Cash and cash equivalents – end of year | | $ | 274,713 | | | $ | 219,499 | | | $ | 247,864 | |
| Supplemental disclosures of cash flow information: | | | | | | |
| Cash paid during the year for: | | | | | | |
| Interest | | $ | — | | | $ | — | | | $ | 354 | |
| Income taxes | | $ | 65,395 | | | $ | 46,808 | | | $ | 5,147 | |
See accompanying notes to consolidated financial statements.
STEVEN MADDEN, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Notes
All figures discussed in these notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
($our consolidated financial statements are in thousands, except share andfor per share data)
amounts.
Note A – Nature of Operations
Steven Madden, Ltd. and its subsidiaries design, source, and market fashion-forward branded and private label footwear, accessories and apparel for women, men, and children. We distribute our products in the wholesale channel through 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 other international markets through our joint ventures in Israel, South Africa, China, Taiwan, Malaysia, and the Middle East along with special distribution arrangements in certain European countries, North Africa, South and Central America, Australia, and various countries in Asia. In addition, our products are distributed through our direct-to-consumer channel within the United States, Canada, Mexico, and Europe, and our joint ventures in Israel, South Africa, China, Taiwan, and the Middle East.
Our product lines include a broad range of contemporary styles designed to establish or capitalize on market trends, complemented by core product offerings. We have established a reputation for design creativity and our ability to offer quality, trend-right products at accessible price points, delivered in an efficient manner and time frame. As of December 31, 2022, the Company operated 232 brick-and-mortar stores and six e-commerce sites.
Note B – Summary of Significant Accounting Policies
[1] Organization:
Steven Madden, Ltd. a Delaware corporation, and its subsidiaries, design, source, market and sell name brand and private label women's, men's and children's shoes, worldwide through its wholesale and retail channels under the Steve Madden Women's, Steve Madden Men's, Madden, Madden Girl, Steven, FREEBIRD by Steven, Superga (under license), Dolce Vita and Betsey Johnson brand names and through its wholesale channels under the Stevies, Report, B Brian Atwood, Mad Love and Blondo brand names and, under license, the Kate Spade and Avec Les Filles brand names. The Company had a design and production agreement with Rebecca Minkoff and a joint venture with Alice & Olivia, both of which were terminated as of December 31, 2017.
In addition, the Company designs, sources, markets and sells name brand and private label handbags and accessories to customers worldwide through its Wholesale Accessories segment, including the Big Buddha, Betsey Johnson, Madden Girl, Betseyville, Cejon, Steve Madden, Steven by Steve Madden, Luv Betsey, B Brian Atwood, DKNY (under license) and Donna Karan (under license) accessories brands. Revenue is generated predominantly through the sale of the Company's brand name and private label merchandise and certain licensed products. At December 31, 2017 and 2016, the Company operated 206 (including four e-commerce websites) and 189 (including four e-commerce websites) retail stores, respectively. Revenue is subject to seasonal fluctuations. See Note Ofor operating segment information.
[2] Principles of consolidation:
Consolidation:
The consolidated financial statements include the accounts of Steven Madden, Ltd. and its wholly-owned subsidiaries Steven Madden Retail, Inc., Diva Acquisition Corp., Diva International, Inc., Madden Direct, Inc., Adesso Madden, Inc., Stevies, Inc., Daniel M. Friedman and Associates, Inc., Big Buddha, Inc.subsidiaries., the Topline Corporation, Cejon, Inc., SML Holdings S.a.r.l., SML Canada Acquisition Corp., Madden International Ltd., DMF International Ltd., Asean Corporation Ltd., Dolce Vita Holdings, Inc., Trendy Imports S.A de C.V., Comercial Diecesiette S.A. de C.V., Maximus Designer Shoes S.A. de C.V.,accounts of BA Brand Holdings LLC, BAI Holding, LLC, Mad Love LLC (formerly a joint venture in which the Company acquired the remaining minority interest in 2016) and Schwartz & Benjamin, Inc. (collectively the "Company"). The accounts of (i) Dexascope Proprietary Ltd., a joint venture in South AfricaUnited States in which the Company is the majority owner, (ii) BA Brand Holdings LLC,interest holder, SM Dolce Limited, a joint venture in Taiwan in which the Company is the majority interest holder, SM Distribution Israel L.P., a joint venture in which the Company is the majority owner, (iii) SPM Shoetrade Holding B.V.,interest holder, Steve Madden South Africa Proprietary Limited, a joint venture in certain regions of Europe in which the Company is the majority owner, (iv)interest holder, AG SM (Jiangsu) Co., Ltd.,Holdings Limited, a joint venture in the Middle East in which the Company controls all ofis the significant participating rightsmajority interest holder and (v) SM Dolce Limited,Distribution China Co., Ltd., a joint venture in which the Company is the majority interest holder, are included in the consolidated financial statements with the other members' interests reflected in “Net (income) lossincome attributable to non-controlling interests”noncontrolling interest” in the Consolidated Statements of IncomeIncome/(Loss) and “Non-controlling interests”“Noncontrolling interest” in the Consolidated Balance Sheets. All significant intercompany balances and transactions have been eliminated. Certain reclassifications were made to prior years' amounts to conform to the 2017 presentation.
[3] Use of Estimates:
The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles ("GAAP"accounting principles generally accepted in the United States of America (“GAAP”), which 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, returns and customer chargebacks, inventory valuation, valuation of goodwill and intangible assets litigation reserves and contingent payment liabilities.impairment of long-lived assets related to retail stores. The Company provides reserves on trade accounts receivables and factor receivablesestimates variable consideration for future customer chargebacks and markdown allowances, discounts, returns and other miscellaneous compliance-related deductions that relate to the current periodcurrent-period sales. The Company evaluates anticipated chargebacks by reviewing several performance indicators of its major customers.
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
($ in thousands, except share and per share data)
Note A – Summary of Significant Accounting Policies (continued)
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 allowance.allowances.
Cash and Cash Equivalents:
[4] Cash equivalents:
Cashand cash equivalents at December 31, 2017consist of cash balances and 2016 amounted to approximately$58,436 and $3,309,respectively, and consisted of money market accounts. The Company considers all highly liquid instrumentsinvestments with an originala maturity of three months or less when purchased to be cash equivalents.at the date of purchase.
Short-Term Investments:
[5] Marketable securities:
Marketable securitiesShort-term investments consist primarily of certificates of deposit and corporate bonds with original maturities greaterless than three months and upor equal to four years atone year as of the time of purchase. These securities, which are classified as available-for-sale, are carried at fair value, with unrealized gains and losses, net of any tax effect, reported in stockholders' equity as accumulated other comprehensive income (loss). These securities are classified as current and non-current marketable securities based upon their maturities. Amortization of premiums and discounts is included in interest income. For the years ended December 31, 2017 and 2016, the amortization of bond premiums totaled $983 and $1,234, respectively. The values of these securities may fluctuate as a result of changes in market interest rates and credit risk. The schedule of maturities at December 31, 2017 and 2016 are as follows:
balance sheet date.
STEVEN MADDEN, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | | | | | | | | | |
| Maturities as of
December 31, 2017 |
| Maturities as of
December 31, 2016 |
| 1 Year or Less |
| 1 to 4 Years |
| 1 Year or Less |
| 1 to 4 Years |
| Corporate bonds | $ | 11,979 |
|
| $ | 29,523 |
|
| $ | 11,527 |
|
| $ | 70,559 |
|
| Certificates of deposit | 52,048 |
|
| — |
|
| 27,968 |
|
| — |
|
| Total | $ | 64,027 |
|
| $ | 29,523 |
|
| $ | 39,495 |
|
| $ | 70,559 |
|
For the year ended December 31, 2017, gains of $5 were reclassified from Accumulated Other Comprehensive Income and recognized in the Consolidated Statements of Income in Other Income as compared to losses of $661 for the year ended December 31, 2016. At December 31, 2017, current marketable securities included unrealized losses of $106 and unrealized gains of $1 while long-term marketable securities included unrealized gains of $3 and unrealized losses of $90. At December 31, 2016, current marketable securities included unrealized losses of $279 and long-term marketable securities included unrealized gains of $89 and unrealized losses of $118.
[6] Inventories:
Inventories which consist of finished goods on hand and in transit and are stated at the lower of cost (first-in, first-out method) or market.net realizable value.
[7]Property and equipment:
Equipment, Net:
Property and equipment are stated at cost less accumulated depreciation and amortization.amortization and any impairment. Depreciation is computed utilizing the straight-line method based on estimated useful lives ranging from three to ten27.5 years. Leasehold improvements are amortized utilizing the straight-line method over the shorter of their estimated useful lives or the remaining lease term. Impairment losses are recognized in income/(loss) from operations for property and equipment and other long-lived assets including definite-lived intangibles, used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are not sufficient to recover the assets' carrying amount. Impairment losses are measured by comparing the fair value of the assets to their carrying amount. See Note F – Property and Equipment for further information.
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
($ in thousands, except share and per share data)
Note A – Summary of Significant Accounting Policies (continued)
[8]Goodwill and intangible assets:
Intangible Assets:
The Company's goodwill and indefinite livedindefinite-lived intangible assets are not amortized,amortized; rather they are tested for impairment on an annual basis at the beginning of the third quarter, or more often if events or circumstances change that could cause these assets to become impaired.
In January 2017, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") No. 2017-04, “Intangibles - Goodwill and Other” (Topic 350) “Simplifying the Test for Goodwill Impairment”. Under the amendments in this update,accordance with applicable accounting guidance, indefinite-lived intangible assets and goodwill aremay be assessed for impairment by performing a qualitative assessment whichthat evaluates relevant events or circumstances in order to determine whether it is more likely than not that the fair value of an intangible asset or reporting unit is less than its carrying amount. The factors that are considered include, but are not limited to, historical financial performance, expected future performance, macroeconomic and industry conditions and legal and regulatory environment.environments. If it is more likely than not that the fair value of the intangible asset or reporting unit is less than its carrying amount, a quantitative impairment test is performed. The quantitative impairment test identifies the existence of potential impairment by comparing the fair value of the intangible asset or reporting unit is compared withto its carrying amount, and if the fair value of the intangible asset or reporting unit is less than its carrying amount, an impairment is recognized equal to the amount by which the carrying value of the intangible asset or reporting unit exceeds its fair value, not to exceed the carrying amount. The guidance is effective in fiscal years beginning after December 15, 2020. The Company adopted the new guidance in the second quarter of 2017. During the fourth quarter of 2017, the Company recognized an impairment charge of $1,000 related to the Wild Pair trademark. The impairment was triggered by a loss of future anticipated cash flows. The Company completed its annual impairment tests on goodwillSee Note G – Goodwill and its remaining indefinite-lived intangible assets during the third quarter of 2017, and no other impairments were recognized.
Intangible Assets for further information.
The Company amortizes its intangible assets with definitefinite useful lives over their estimated useful lives and reviews these assets for impairment when there is a triggering event.are indicators of impairment are present. The Company is currently amortizing its acquired intangible assets with definitefinite useful lives over periods typically from two10 to ten20 years using the straight-line method.
[9] 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. 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 proceeds thereof 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 nonvested 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. For the years ended December 31, 2017, 2016 and 2015, options to purchase approximately 9,000, 374,000 and 26,000 shares of common stock, respectively, have been excluded in the calculation of diluted income per share as the result would have been anti-dilutive. For the years ended December 31, 2017, 2016 and 2015, all unvested restricted stock awards were dilutive.
[10]Comprehensive Income:
Loss:
Comprehensive incomeloss is the total of net earnings and all other non-owner changes in equity. Comprehensive incomeloss for the Company includes net income,income/(loss), foreign currency translation adjustments and unrealized loss/gains on cash flow hedging and unrealized gains and losses on marketable securities.hedging. The accumulated balances for each component of other comprehensive loss attributable to the Company arewere as follows:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| (in thousands) | 2022 | | 2021 | | 2020 |
| Currency translation adjustment | $ | (35,493) | | | $ | (29,877) | | | $ | (28,421) | |
| Cash flow hedges, net of tax | (216) | | | 333 | | | (743) | |
| | | | | |
| Accumulated other comprehensive loss | $ | (35,709) | | | $ | (29,544) | | | $ | (29,164) | |
Amounts reclassified from accumulated other comprehensive loss to operating income/(loss) in the Consolidated Statements of Income/(Loss) during 2022, 2021 and 2020 were a loss of $676, $961 and $89, respectively.
Advertising Costs:
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Advertising costs are expensed as incurred, including digital and print advertisements. For the years ended December 31, 2017, 20162022, 2021 and 2015
($ in thousands, except share and per share data)
Note A – Summary of Significant Accounting Policies (continued)
|
| | | | | | | | |
| | | 2017 | | 2016 |
| Currency translation adjustment | | $ | (24,798 | ) | | $ | (31,634 | ) |
| Cash flow hedges, net of tax | | (623 | ) | | 191 |
|
| Unrealized loss on securities, net of tax | | (192 | ) | | (308 | ) |
| Accumulated other comprehensive loss | | $ | (25,613 | ) | | $ | (31,751 | ) |
[11]Advertising costs:
The Company expenses costs of print, radio and billboard advertisements as incurred. Advertising2020, advertising expenses included in operating expenses amounted to approximately $19,629 in 2017,$16,024 in 2016$85,921, $65,080, and $14,892 in 2015.$33,068, respectively.
[12] STEVEN MADDEN, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Revenue Recognition:
The Company recognizes revenue on wholesale sales when (i) products are shipped pursuant to its standard terms, which are freight on board (“FOB”) Company warehouse, or when products are delivered to the consolidators, or any other destination, as perperformance obligations identified under the terms of contracts with its customers are satisfied, which generally occurs upon the customers’ purchase order, (ii) persuasive evidencetransfer of an arrangement exists, (iii)control in accordance with the pricecontractual terms and conditions of the sale. Most of the Company’s revenue is fixed and determinable and (iv) collectionrecognized at a point in time when product is reasonably assured. Sales reductions on wholesale sales for anticipated discounts, allowances and other deductions are recognized during the period when sales are recorded. With the exception of our cold weather accessories and Blondo businesses, normally we do not accept returns from our wholesale customers unless there are product quality issues, which we charge backshipped to the vendors at cost.customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods, which includes estimates for variable consideration. Variable consideration mainly includes markdown allowances, co-op advertising programs and product returns. The revenue recognition for the Company's segments is described below (see Note S – Operating Segment Information for disaggregated revenue amounts by segment).
Wholesale Sales of cold weather accessories
and Blondo products to wholesale customers are recorded net of returns, which are estimated based on historical experience. Such amounts have historically not been material.
Retail sales are recognized when the payment is received from customers and are recorded net of estimated returns. Segments. The Company generates commission income actingrevenue through the design, sourcing and sale of branded footwear, accessories and apparel to both domestic and international customers who, in turn, sell the products to the end consumer. The Company recognizes revenue when performance obligations identified under the terms of contracts with its customers are satisfied, which occurs upon the transfer of control of the merchandise in accordance with the contractual terms and conditions of the sale. The Company also generates revenue through the design, sourcing and sale of private label footwear and accessories to both domestic and international customers who brand the products and sell them to the consumer.
Direct-to-Consumer Segment. The Company owns and operates 232 brick-and-mortar stores throughout the United States, Canada, Mexico, Israel, Middle East, South Africa, and China, and six e-commerce sites. The Company generates revenue through the sale of branded footwear, apparel and accessories directly to the consumer. The Company's revenue associated with brick-and-mortar store sales is recognized at the time of the point of sale when the customer takes control of the goods and payment is received. The Company's e-commerce business recognizes sales upon receipt of goods by the customer.
First Cost Segment. The Company earns commissions for serving as a buying agent by arrangingfor footwear products under private labels and certain owned brands for select national chains, and value-priced retailers. As a buying agent, the Company utilizes its expertise and relationships with shoe manufacturers to manufacturefacilitate the production of private label shoes to the specifications of its customers.customer specifications. The Company’s commission revenue also includes fees charged for its design and product and development services provided to certain supplierssuppliers. The Company satisfies its performance obligation to its customers by performing the services required in connection with the Company’s private label business. Commission revenuebuying agency agreements and product and development fees are recognized as earnedthereby earns its commission fee at the point in time when title to the product transfers fromcustomer’s freight forwarder takes control of the goods.
the manufacturer to the customer and collections are reasonably assured and are reported on a net basis after deducting related operating expenses.
Licensing Segment. The Company licenses its Steve Madden®, Steven by Steve Madden® and Madden Girl®various owned trademarks under licensing agreements for use in connection with the manufacture, marketing and sale of outerwear, hosiery, jewelry, watches, sunglasses, hair accessories, umbrellas, bedding, luggage,select apparel, accessory, and men’s leather accessories. We license the Stevies® trademark for use in connection with the manufacture, marketing and sale of outerwear exclusively to Target. In addition, the Company licenses the Betsey Johnson® trademark for use in connection with the manufacture, marketing and sale of women's and children’s apparel, hosiery, swimwear, fragrance and beauty, sleepwear, activewear, jewelry, watches, bedding, luggage, stationary, umbrellas and household goods. The Company also licenses the Dolce Vita® trademark for use in connection with the manufacture, marketing and sale of women's and children's apparel.home categories, as well as various other non-core products. The license agreements require the licensee to pay the Company a royalty and, in substantially all of the agreements, an advertising fee, both of which are based on the higher of a minimum or aactual net salesrevenues percentage as defined in the various agreements. In addition, underFor license agreements where the terms of retail selling agreements, most ofsales-based percentage fee exceeds the Company’s international distributors are required to paycontractual minimum fee, the Company a royalty based on a percentage of net sales, in additionrecognizes revenues as the licensed products are sold as reported to a commission and a design fee on the purchases of the Company’s products.Company by its licensees. In substantially all of the Company’s license agreements, the minimum guaranteed royalty is earned and receivablereceived on a quarterly basis. LicensingFor license agreements where the sales-based percentage fee does not exceed the contractual minimum fee, the Company recognizes the contractual minimum fee as revenue is recognizedratably over the contractual period.
Variable Consideration
The Company supports retailers’ initiatives to maximize the sales of the Company’s products on the basisretail floor by providing markdown allowances and participating in various other marketing initiatives by subsidizing certain co-op advertising programs of such retailers. Such expenses are reflected in the consolidated financial statements as deductions to arrive at net sales reportedrevenues.
Markdown Allowances. The Company provides markdown allowances to its retailer customers, which are recorded as a reduction of revenue in the period in which the branded footwear and accessories revenues are recognized. The Company estimates its markdown allowances by reviewing several performance indicators, including retailers' inventory levels, sell-through rates and gross margin levels.
Co-op Advertising Programs. Under co-op advertising programs, the Company agrees to reimburse the retailer for a portion of the costs incurred by the licensees, orretailer to advertise and promote some of the minimum guaranteed royalties, if higher.
Company's products. The Company estimates the costs of co-op advertising programs based on the terms of the agreements with its retailer customers.
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
($ in thousands, except share and per share data)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Rights of Return. The Company’s Direct-to-Consumer segment accepts returns within 30 days from the date of sale, or 30 days from the date of delivery for online orders, for unworn merchandise that the Company is able to re-sell through the channel. The Company does not accept returns as a normal business practice from its branded and private label wholesale customers except for its Blondo, Dolce Vita and BB Dakota product lines. The Company estimates such returns based on historical experience and current market conditions, which have historically not been material. In addition, the Company's wholesale business may, from time to time, accept returns for damaged products from its wholesale customers on which the Company’s costs are normally charged back to the responsible third-party factory.
Note A – Summary of Significant Accounting Policies (continued)
[13] Taxes Collected Fromfrom Customers:
The Company accounts for certain taxes collected from its customers in accordance with the accounting guidance whichthat permits companies to adopt a policy of presenting taxes in the income statement on either a gross basis (included in revenues and costs) or a net basis (excluded from revenues). Taxes within the scope of this accounting guidance would include taxes that are imposed on a revenue transaction between a seller and a customer, for example,such as sales taxes, use taxes, value-added taxes and some types of excise taxes. The Company records allaccounts for sales taxes and other related taxes on a net basis.basis, excluding such taxes from revenue.
[14] Sales Deductions:
The Company supports retailers’ initiatives to maximize sales of the Company’s products on the retail floor by subsidizing the co-op advertising programs of such retailers, providing them with inventory markdown allowances and participating in various other marketing initiatives of its major customers. In addition, the Company accepts returns for damaged products for which the Company’s costs are normally charged back to the responsible third-party factory. Such expenses are reflected in the consolidated financial statements as deductions to arrive at net sales.
[15] Cost of Sales:
All costs incurred to bring finished products to the Company’s distribution center or to the customers’ freight forwarder and, in the RetailDirect-to-Consumer segment, the costs to bring products to the Company’s stores (exclusive of depreciation and amortization) are included in the costCost of sales line on the Consolidated Statements of Income.Income/(Loss). These include the cost of finished products, purchase commissions, letter of credit fees, brokerage fees, sample expenses, custom duty,duties, inbound freight, royalty payments on licensed products, labels and product packaging. All warehouse and distribution costs related to the Wholesale segments and freight to customers, if any, are included in the operating expenses line item of the Company’s Consolidated Statements of Income.Income/(Loss). The Company’s gross margins may not be comparable to those of other companies in the industry because some companiesthey may include warehouse and distribution costs, as well as other costs excluded from cost of sales by the Company, as a component of cost of sales, while other companies report those costs on the same basis as the Company and include them in operating expenses.Company.
[16]Warehouse and shipping costs:
Shipping Costs:
The Company includes all warehouse and shipping costs for the Wholesale segmentsegments in the Operating Expenses line onoperating expenses in the Consolidated Statements of Income.Income/(Loss). For the years ended December 31, 2017, 20162022, 2021, and 2015,2020, the total warehouse and distributionshipping costs (except costs incurred to ship from warehouse to retail stores) included in Operating Expensesoperating expenses were $32,395, $27,079$111,326, $86,367 and $24,176$58,621, respectively. Since the Company's standard terms of sales are “FOB Steve Madden warehouse,” the Company's wholesale customers absorb most shipping costs. Shipping costs to wholesale customers incurred by the Company are not considered significant and are included in the Operating Expenseoperating expenses line item in the Consolidated Statements of Income.Income/(Loss).
Employee Benefit Plan:
[17]Employee benefit plan:
The Company maintains a tax-qualified 401(k) plan, which is available to each of the Company's eligible employees who elect to participate after meeting certain length-of-service requirements. The Company made discretionary matching contributions of 50% of employees' contributions up to a maximum of 6% of employees' compensation, which vest to the employees over a period of time. Total matching contributions to the plan for 2017, 20162022, 2021, and 20152020 were approximately$1,819,$1,633 $2,125, $1,989 and $1,602,$1,809, respectively.
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
($ in thousands, except share and per share data)
Note A – Summary of Significant Accounting Policies (continued)
[18] Derivative Instruments:
The Company uses derivative instruments to manage its exposure to cash-flow variability from foreign currency risk. Derivatives are carried on the balance sheet at fair value and included in prepaid expenses and other current assets or accrued expenses. The Company applies cash flow hedge accounting for its derivative instruments. Net derivative gains and losses attributable to derivatives subject to cash flow hedge accounting reside in accumulated other comprehensive income (loss)loss and will be reclassified to earnings in future periods as the economic transactions to which the derivatives relate affect earnings. See Note K -L – Derivative Instruments.Instruments for additional details.
[19] STEVEN MADDEN, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes:
The provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits
recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. See Note M -N – Income Taxes.Taxes for additional details.
[20] Share-basedEquity-based Compensation:
The Company recognizes expense related to share-basedequity-based payment transactions in which it receives employee services in exchange for equity instruments of the Company. Share-basedEquity-based compensation cost for restricted stock units (“RSUs”)awards is measured based on the closing fair market value of the Company’s common stock on the date of grant. Share-basedEquity-based compensation cost for stock options is measured at the grant date, based on the fair-value as calculated by the Black-Scholes-Merton (“BSM”) option-pricing model. The BSM option-pricing model incorporates various assumptions, including expected volatility, estimated expected life and interest rates. The Company grants performance-based share awards to certain individuals, the vesting of which is subject to the Company's or individual's achievement of certain performance goals. On a quarterly basis, the Company assesses actual performance versus the predetermined performance goals, and adjusts the equity-based compensation expense to reflect the relative performance achievement. Actual distributed shares are calculated upon conclusion of the service and performance periods. The Company recognizes share-based compensation net of estimated forfeitures. The Company estimates the forfeiture rate based on historical forfeitures. Equity-based compensation cost for performance based awards is measured based on the closing fair market value of the Company’s common stock on the date of grant. The Company recognizes equity-based compensation cost over the award’s requisite service period. The Company recognizes a benefit from share-based compensationperiod and is presented in operating expenses in the Consolidated Statements of Income if an incremental tax benefit is realized.Income/(Loss). See Note H - Stock- Based Compensation.– Equity-Based Compensation for additional details.
Leases:
The Company leases office space, sample production space, warehouses, showrooms, storage units and retail stores under 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 right-of-use assets, along with other long-lived assets, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. For stores with an indicator of impairment, the Company performs a recoverability test, comparing estimated undiscounted cash flows to the carrying value of the related long-lived assets. When the carrying value is more than the estimated undiscounted cash flows, the Company writes the assets down to their fair value. Fair values of the long-lived assets are estimated using an income approach based on management’s forecast of future cash flows derived from continued retail operations and the fair values of individual operating lease assets were determined using estimated market rental rates. Significant estimates are used in determining future cash flows of each store over its remaining lease term, including the Company's expectations of future projected cash flows. An impairment loss is recorded if the carrying amount of the long-lived asset group exceeds its fair value.
A majority of the retail store leases provide for contingent rental payments if gross sales exceed certain targets. In addition, many of the leases contain rent escalation clauses to compensate for increases in operating costs and real estate taxes. Rent expense is calculated by amortizing total base rental payments (net of any rental abatements, construction allowances and other rental concessions), on a straight-line basis, over the lease term.
STEVEN MADDEN, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note BC – AcquisitionsRecent Accounting Pronouncements
SM Dolce Limited
Recently Adopted
In September 2017,March 2020, the FASB issued ASU 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” (“ASU No. 2020-04”), which provides practical expedients for contract modifications and certain hedging relationships associated with the transition from reference rates that are expected to be discontinued. Further, in December 2022, the FASB issued ASU 2022-06 “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848,” (“ASU No. 2022-06”). ASU No. 2020-04 and ASU No. 2022-26 are applicable to the Company's borrowing instruments that use LIBOR as a reference rate, with the objective of providing temporary relief during the transition period. ASU 2020-04 was effective upon issuance and can be applied to contract modifications retrospectively or prospectively through December 31, 2022. ASU No. 2022-06 deferred this effective date to December 31, 2024. The adoption of ASU No. 2020-04 and ASU No. 2022-06 did not have a material impact on the Company's consolidated financial statements.
Note D – Acquisitions & Sale of Minority Noncontrolling Interest
Acquisitions
On December 23, 2022, the Company formed a joint venture ("AG SM Taiwan"Holdings Ltd.") with Dolce LimitedApparel FZCO, through its subsidiary, SM DolceMadden Asia Holding Limited. The Company is the majorityowns 50.1% interest holder in AG SM TaiwanHoldings Ltd. and controls allpaid a contribution of the significant participating rights of the joint venture.$7,014. AG SM TaiwanHoldings Ltd. is the exclusive distributor of the Company's products in Taiwan.the Middle East. As the Company controls all of the significant participating rights ofhas a controlling financial interest in the joint venture and is the majority interest holder in AG SM Taiwan,Holdings Ltd., the assets, liabilities and results of operations of AG SM TaiwanHoldings Ltd. are consolidated and included in the Company’s consolidated financial statements. The other member's interest is reflected in “Net income attributable to noncontrolling interests” in the Consolidated Statements of IncomeIncome/(Loss) and “Noncontrolling interests” in the Consolidated Balance Sheets.
SM (Jiangsu) Co., Ltd.
In September 2017,On December 27, 2021, the Company acquired the rights for Dolce Vita Handbags for the total purchase price of $2,000, which include trademarks and all internet domain name registrations.
On June 28, 2021, the Company completed the acquisition of the remaining 49.9% non-controlling interest in its South African joint venture in the amount of $2,260. The South African joint venture was formed in 2014 and distributes Steve Madden-branded footwear and accessories/apparel throughout South Africa.
On April 14, 2021, the Company completed the acquisition of the remaining 49.9% non-controlling interest in its European joint venture in the amount of $16,682. The European joint venture was formed in 2016 and distributes Steve Madden-branded footwear and accessories/apparel to most countries throughout Europe.
Sale of Minority Noncontrolling Interest
As of April 1, 2022, the Company sold a 49.9% minority non-controlling interest in Steve Madden South Africa Proprietary Limited for $1,017 to a third party to form a joint venture ("SM China"venture.
Note E – Fair Value Measurement
The accounting guidance under Accounting Standards Codification 820-10, “Fair Value Measurements and Disclosures” (“ASC 820-10”) with Xuzhou C. banner Footwear, Ltd. through its subsidiary, SM (Jiangsu) Co., Ltd. The Company controls all of the significant participating rights of the joint venture. SM China is the exclusive distributor of the Company's products in China. Asrequires the Company controls allto make disclosures about the fair value of certain of its assets and liabilities. ASC 820-10 clarifies the significant participating rightsprinciple that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. ASC 820-10 utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. A brief description of those three levels is as follows:
•Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities.
•Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.
•Level 3: Significant unobservable inputs.
STEVEN MADDEN, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NotesThe Company’s financial assets and liabilities subject to Consolidated Financial Statements
fair value measurements, as of December 31, 2017, 20162022 and 20152021 were as follows:
($ in thousands, except share | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2022 | | As of December 31, 2021 |
| (in thousands) | | Fair value | | Level 1 | | Level 2 | | Level 3 | | Fair value | | Level 1 | | Level 2 | | Level 3 |
| Assets: | | | | | | | | | | | | | | | | |
| Forward contracts | | $ | 916 | | | $ | — | | | $ | 916 | | | $ | — | | | $ | 494 | | | $ | — | | | $ | 494 | | | $ | — | |
| Total assets | | $ | 916 | | | $ | — | | | $ | 916 | | | $ | — | | | $ | 494 | | | $ | — | | | $ | 494 | | | $ | — | |
| Liabilities: | | | | | | | | | | | | | | | | |
| Contingent consideration | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 6,960 | | | $ | — | | | $ | — | | | $ | 6,960 | |
| Forward contracts | | 1,241 | | | — | | | 1,241 | | | — | | | 46 | | | — | | | 46 | | — | |
| Total liabilities | | $ | 1,241 | | | $ | — | | | $ | 1,241 | | | $ | — | | | $ | 7,006 | | | $ | — | | | $ | 46 | | | $ | 6,960 | |
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 per share data)
forward rates.
Note B – Acquisitions (continued)
the joint venture in SM China, the assets, liabilities and resultsThe Company's Level 3 balance consists of operations of SM China are consolidated and includedcontingent consideration related to acquisitions. The changes in the Company’s consolidated financial statements. The other member's interest is reflectedCompany's Level 3 liabilities for the years ended December 31, 2022 and 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | Balance at Beginning of the Year | | | | Adjustments(1)(2) | | Transfer out of Level 3(3) | | Balance at End of the Year |
| 2022: | | | | | | | | | |
| Liabilities: | | | | | | | | | |
| Contingent consideration | $6,960 | | | | (5,807) | | (1,153) | | $— |
| 2021: | | | | | | | | | |
| Liabilities: | | | | | | | | | |
| Contingent consideration | $207 | | | | 11,862 | | (5,109) | | $6,960 |
(1) In 2022, amount consists of an adjustment of $(5,807) that was included as a benefit in “Net income attributableoperating expenses, related to noncontrolling interests”the change in valuation of the contingent consideration in connection with the acquisition of B.B. Dakota, Inc.
(2) In 2021, amount consists of adjustments of $11,869 and $(7) that were included as an expense in operating expenses, related to the change in valuation of the contingent consideration in connection with the acquisitions of B.B. Dakota, Inc. and GREATS Brand, Inc., respectively.
(3) On December 31, 2022, the transfer out of Level 3 amount of $1,153, which was recorded in the Consolidated Statementscurrent portion of Income and “Noncontrolling interests” inour contingent payment liabilities on the Consolidated Balance Sheets.Sheets, represented the current portion of our contingent liabilities and was measured at the amount payable based upon actual EBITDA performance for the related performance period.On December 31, 2021, the transfer out of Level 3 amount of $5,109, which was recorded in the current portion of our contingent payment liabilities on the Consolidated Balance Sheets, represented the current portion of our contingent liabilities and was measured at the amount payable based upon actual EBITDA performance for the related performance period. As of December 31, 2022, $5,109 was paid, of which $339 was included as a payment from operating activities and $4,770 was included as a payment from financing activities on the Condensed Consolidated Statement of Cash Flows.
Schwartz & Benjamin
In January 2017,At December 31, 2022, the liability for contingent consideration was $1,153 in connection with the August 12, 2019 acquisition of B.B. Dakota, Inc. Pursuant to the terms of an earn-out provision contained in the equity purchase agreement between the Company acquired alland the sellers of the outstanding capital stock of each of Schwartz & Benjamin,B.B. Dakota, Inc., B.D.S.,the earn-out payments are based on EBITDA performance for the related performance period.
At December 31, 2022, the liability for contingent consideration was $0 in connection with the August 9, 2019 acquisition of GREATS Brand, Inc., Quinby Ridge Enterprises LLC and DANIELBARBARA Enterprises LLC (collectively, "Schwartz & Benjamin"). Founded in 1923, Schwartz & Benjamin specializes Pursuant to the terms of an earn-out provision contained in the design, sourcingequity purchase agreement between the Company and salethe sellers of licensed and private label footwear and distributes its fashion footwear to wholesale customers, including department stores and specialty boutiques, as well as the retail stores of its brand partners. The total purchase price for the acquisition was approximately $37,112, which included a cash payment at closing of $17,396 less a working capital adjustment of $901, plus potentialGREATS Brand, Inc., earn-out payments are based on the achievement of certain earnings targets for each of the twelve month periods ending on January 31, 2018 through 2023, inclusive.EBITA performance. The fair value of the contingent payments was estimated using a risk neutral simulation method to model the present valueprobability of the payments based on management's projections of thedifferent financial results of Schwartz & BenjaminGREATS Brand, Inc. during the three year earn-out period and was finalized at $20,617. On November 27, 2017,period. However, the Company entered into
an amendment to the equity purchase agreement with the sellers of Schwartz & Benjamin to change the manner of calculating the earn-out and to provide for payments based on theEBITA performance of certain specified license agreements. In connection with this amendment, the Company reduced the earn-out liability from $20,617 to $10,000 and recorded a credit to operating expenses in the amount of $10,617.
The transaction was accounted for using the acquisition method required by GAAP. Accordingly, the assets and liabilities of Schwartz & Benjamin were recorded at their fair values, and the excess of the purchase price over the fair value of the assets acquired and liabilities assumed, including identified intangible assets, was recorded as goodwill. The fair values assigned to tangible and intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions. The purchase price has been allocated as follows:
|
| | | |
| Inventory | $ | 11,635 |
|
| Accounts receivable | 10,836 |
|
| Trademarks | 4,630 |
|
| Customer relations | 5,210 |
|
| Fixed assets | 3,281 |
|
| Prepaids and other assets | 2,063 |
|
| Accounts payable | (7,756 | ) |
| Accrued expenses | (4,669 | ) |
| Total fair value excluding goodwill | 25,230 |
|
| Goodwill | 11,882 |
|
| | |
| Net assets acquired | $ | 37,112 |
|
Contingent consideration classified as a liability will be remeasured at fair value at each reporting date, until the contingency is resolved, with changes recognized in earnings. The goodwill related to this transaction isnot expected to be deductible for tax purposes over 15 years.met under any of the scenarios.
Note C – Factor Receivable
The Company has a collection agency agreement with Rosenthal & Rosenthal, Inc. (“Rosenthal”) that became effective on September 15, 2009. The agreement can be terminated by the Company or Rosenthal at any time upon 60 days prior written notice.
STEVEN MADDEN, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NotesThe fair value of trademarks is 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 G – Goodwill and Intangible Assets).
The fair values of lease right-of-use assets and fixed assets related to Consolidated Financial StatementsCompany-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 – Property and Equipment and Note M – 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. 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 – Property and Equipment
The major classes of assets and total accumulated depreciation and amortization were as follows:
| | | | | | | | | | | | | | | | | |
| | | As of December 31, |
| (in thousands) | Average Useful Life | | 2022 | | 2021 |
| Land and building | 27.5 (Building) | | $ | 890 | | | $ | 968 | |
| Leasehold improvements | Lesser of remaining lease or asset life | | 85,974 | | | 85,137 | |
| Machinery and equipment | 10 years | | 7,617 | | | 7,864 | |
| Furniture and fixtures | 3 to 5 years | | 12,508 | | | 11,650 | |
| Computer equipment and software | 3 to 10 years | | 75,004 | | | 72,857 | |
| Construction in progress | | | 8,662 | | | 671 | |
| | | 190,655 | | | 179,147 | |
Less impairments and disposals (1) | | | (14,271) | | | (14,701) | |
| Less accumulated depreciation and amortization | | | (135,720) | | | (128,656) | |
| Property and equipment - net | | | $ | 40,664 | | | $ | 35,790 | |
(1) Due to the COVID-19 pandemic, impairments were recorded related to stores in 2021 (see below for further explanation). In 2021, impairments include disposals.
Depreciation and amortization expense related to property and equipment included in operating expenses amounted to approximately $11,576, $12,533, and $13,350 in 2022, 2021 and 2020, respectively, and includes computer software amortization expense for 2022, 2021, and 2020 of $3,505, $3,135, and $3,007, respectively.
Property and equipment, along with other long-lived assets, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. In 2021, the Company identified indicators of impairment for long-lived assets at certain retail stores. For such stores, the Company performed a recoverability test, comparing estimated undiscounted cash flows to the carrying value of the related long-lived assets. When the carrying value was more than the estimated undiscounted cash flows, the Company determined that an impairment test was required. Fair values of the long-lived assets were estimated using an income approach based on management’s forecast of future cash flows derived from continued retail operations and the fair values of individual operating lease assets were determined using estimated market rental rates. Significant estimates are used in determining future cash flows of each store over its remaining lease term, including the Company's expectations of future projected cash flows that include revenues, operating expenses, and market conditions. An impairment loss is recorded if the carrying amount of the long-lived asset group exceeds its fair value. As a result, the Company recorded an impairment charge of $409 and $14,712 related to furniture fixtures and leasehold improvements for the years ended December 31, 2017, 20162021 and 20152020, respectively. These impairment charges were recorded in the Direct-to-Consumer segment. There were no impairment charges recorded for the year ended December 31, 2022.
STEVEN MADDEN, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note G – Goodwill and Intangible Assets
The following is a summary of the carrying amount of goodwill by reporting unit as of December 31, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| Wholesale | | | | |
| (in thousands) | Footwear | | Accessories/Apparel | | Direct-to-Consumer | | Net Carrying Amount |
| Balance at January 1, 2021 | $ | 91,097 | | | $ | 62,688 | | | $ | 14,480 | | | $ | 168,265 | |
| Translation | (1,031) | | | — | | | 761 | | | (270) | |
| Balance at December 31, 2021 | 90,066 | | | 62,688 | | | 15,241 | | | 167,995 | |
| Translation | 107 | | | — | | | (17) | | | 90 | |
| Balance at December 31, 2022 | $ | 90,173 | | | $ | 62,688 | | | $ | 15,224 | | | $ | 168,085 | |
The following table details identifiable intangible assets as of December 31, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2022 |
| (in thousands) | Estimated Lives | | Cost Basis(1) | | Accumulated Amortization | | Impairment and other (2) | | Net Carrying Amount |
| Trade names | 1–10 years | | $ | 18,695 | | | $ | (16,075) | | | $ | (2,620) | | | $ | — | |
| Customer relationships | 10-20 years | | 38,680 | | | (25,059) | | | (1,574) | | | 12,047 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | 57,375 | | | (41,134) | | | (4,194) | | | 12,047 | |
| Re-acquired right | indefinite | | 35,200 | | | — | | | (9,432) | | | 25,768 | |
| Trademarks | indefinite | | 63,283 | | | — | | | 94 | | | 63,377 | |
| | | $ | 155,858 | | | $ | (41,134) | | | $ | (13,532) | | | $ | 101,192 | |
(1) During the year ended December 31, 2021, the Company purchased the trademark for Dolce Vita® Handbags for $2,000 and the cash consideration was paid in thousands, except2022.
(2) 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2021 |
| (in thousands) | Estimated Lives | | Cost Basis(1) | | Accumulated Amortization | | Impairment and other (2)(3) | | Net Carrying Amount |
| Trade names | 1–10 years | | $ | 18,695 | | | $ | (9,025) | | | $ | (2,620) | | | $ | 7,050 | |
| Customer relationships | 10-20 years | | 38,680 | | | (23,164) | | | (1,491) | | | 14,025 | |
| | | 57,375 | | | (32,189) | | | (4,111) | | | 21,075 | |
| Re-acquired right | indefinite | | 35,200 | | | — | | | (7,708) | | | 27,492 | |
| Trademarks | indefinite | | 63,283 | | | — | | | 243 | | | 63,526 | |
| | | $ | 155,858 | | | $ | (32,189) | | | $ | (11,576) | | | $ | 112,093 | |
(1) During the year ended December 31, 2021, the Company purchased the trademark for Dolce Vita® Handbags for $2,000 and the cash consideration was paid in 2022.
(2) Impairment charges of $2,620 in 2021 were recorded related to the Company's BB Dakota® 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 third quarter of each year and whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. A qualitative assessment of goodwill and indefinite-lived intangible assets was performed as of July 1, 2022 and 2021. 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 2022 and 2021, as a result of the annual test, no impairment charges were recorded for goodwill and intangibles.
During the fourth quarter of 2021, certain decisions were made by the Company that resulted in the change in useful life of the BB Dakota trademark from an indefinite to a finite life. As a result, the BB Dakota trademark was assessed for impairment. 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 which are developed using market participant based assumptions. As a result of this assessment, the BB Dakota trademark was written down from the carrying value of $9,670 to its fair value of $7,050, resulting in a pre-tax non-cash impairment charge of $2,620. This charge was recorded in impairment of intangibles in
STEVEN MADDEN, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
the Company’s Consolidated Statements of Income/(Loss) and recognized in the Wholesale Accessories/Apparel segment. The fair value of $7,050 was amortized over its remaining useful life of one year, and was fully amortized in 2022.
As a result of the COVID-19 pandemic and decline in the macroeconomic environment, during the twelve months ended December 31, 2020, the Company’s Cejon, Report, GREATS and Jocelyn trademarks were written down from an aggregate carrying value of $57,198 to their fair values of $12,925, resulting in a pre-tax non-cash impairment charge of $44,273. These charges were recorded in impairment of intangibles in the Company’s Consolidated Statements of Income/(Loss) and recognized in three segments: $27,472 related to Wholesale Accessories/Apparel, $16,345 related to Wholesale Footwear and $456 related to the Direct-to-Consumer segments, respectively. The estimated fair values of these trademarks were determined using an excess earnings method. This method utilizes the present value of the earnings attributable to the intangible asset after providing for the proportion of the earnings that attribute to returns for contributory assets.
During the year ended December 31, 2021 the Company sold one of its internally developed trademarks for a gain of $8,000, which was recorded in operating expenses in the Company's Consolidated Statements of Income/(Loss).
The amortization of intangible assets amounted to $9,001, $2,675, and $4,010 for 2022, 2021, and 2020 and is included in operating expenses on the Company's Consolidated Statements of Income/(Loss). The estimated future amortization expense for intangibles as of December 31, 2022 is as follows:
| | | | | |
| (in thousands) | |
| 2023 | $ | 1,679 | |
| 2024 | 1,679 | |
| 2025 | 1,679 | |
| 2026 | 1,679 | |
| 2027 | 1,452 | |
| Thereafter | 3,879 | |
| Total | $ | 12,047 | |
Note H – Equity-Based Compensation
In February 2019, the Company's Board of Directors approved the Steven Madden, Ltd. 2019 Incentive Compensation Plan (the “2019 Plan”), under which non-qualified stock options, stock appreciation rights, performance shares, restricted stock, other stock-based awards and performance-based awards may be granted to employees, consultants and non-employee directors. The 2019 Plan is the successor to the Company's Amended and Restated 2006 Stock Incentive Plan, as amended (the "2006 Plan"), the term of which expired on April 6, 2019. The Company's stockholders approved the 2019 Plan at the Company's annual meeting of stockholders held on May 24, 2019.
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:
| | | | | |
| (in thousands) | |
| Common stock authorized | 11,000 | |
| Stock-based awards, including restricted stock and stock options granted, net of expired or cancelled awards | (5,066) | |
| Common stock available for grant of stock-based awards as of December 31, 2022 | 5,934 | |
In addition, vested and unvested options to purchase 1,719 shares of common stock and 1,170 shares of unvested restricted stock awarded under the 2006 Plan were outstanding as of December 31, 2022.
STEVEN MADDEN, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022, 2021, and 2020, total equity-based compensation was as follows:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| (in thousands) | 2022 | | 2021 | | 2020 |
| Restricted stock | $ | 21,005 | | | $ | 18,144 | | | $ | 18,740 | |
| Stock options | 3,391 | | | 4,134 | | | 3,899 | |
| Total | $ | 24,396 | | | $ | 22,278 | | | $ | 22,639 | |
We calculate an estimated forfeiture rate annually based on historical forfeiture and expectations about future forfeitures. Equity-based compensation is included in operating expenses on the Company’s Consolidated Statements of Income/(Loss).
Restricted Stock
The following table summarizes restricted stock activity during the year ended December 31, 2022 and 2021:
| | | | | | | | | | | |
| (in thousands) | Number of Shares | | Weighted Average Fair Value
at Grant Date |
| | | |
| | | |
| | | |
| | | |
| Outstanding at January 1, 2021 | 3,651 | | | 20.81 | |
| Granted | 413 | | | 40.64 | |
| Vested | (1,166) | | | 19.93 | |
| Forfeited | (49) | | | 35.26 | |
| Outstanding at December 31, 2021 | 2,849 | | | $ | 23.81 | |
| Granted | 439 | | | 40.30 | |
| Vested | (1,144) | | | 21.25 | |
| Forfeited | (35) | | | 34.37 | |
| Outstanding at December 31, 2022 | 2,109 | | | $ | 28.44 | |
As of December 31, 2022, the Company had $43,266 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 3.0 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.
The fair values of the restricted stock that vested during the years ended December 31, 2022, 2021, and 2020 were $24,300, $23,231, and $23,839, respectively.
STEVEN MADDEN, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Stock Options
Activity relating to stock options granted under the Company’s plans during the year ended December 31, 2022 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands except for per share price) | Number of Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term | | Aggregate Intrinsic Value |
| Outstanding at January 1, 2021 | 2,674 | | | $ | 26.80 | | | | | |
| Granted | 270 | | | $ | 43.30 | | | | | |
| Exercised | (411) | | | $ | 23.67 | | | | | |
| Forfeited | (2) | | | $ | 31.56 | | | | | |
| Outstanding at December 31, 2021 | 2,531 | | | $ | 29.06 | | | 2.7 years | | $ | 44,054 | |
| Vested at December 31, 2021 | 2,070 | | | $ | 28.20 | | | 2.6 years | | $ | 37,829 | |
| | | | | | | |
| Outstanding at January 1, 2022 | 2,531 | | | $ | 29.06 | | | | | |
| Granted | 266 | | | 37.04 | | | | | |
| Exercised | (24) | | | 25.61 | | | | | |
| Forfeited | (17) | | | 39.28 | | | | | |
| Outstanding at December 31, 2022 | 2,756 | | | $ | 29.80 | | | 2.0 years | | $ | 11,778 | |
| | | | | | | |
| Vested and Exercisable at December 31, 2022 | 2,543 | | | $ | 29.11 | | | 2.0 years | | $ | 11,741 | |
At December 31, 2022, $1,825 of total unrecognized compensation cost related to non-vested stock option awards is expected to be recognized over a weighted-average period of 1.5 years.
Additional information pertaining to the Company's stock option plan was as follows:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| (in thousands) | 2022 | | 2021 | | 2020 |
| Cash received from the exercise of stock options | $ | 602 | | | $ | 9,732 | | | $ | 1,609 | |
| Intrinsic value of stock options exercised | $ | 314 | | | $ | 8,622 | | | $ | 993 | |
| Tax benefits realized on exercise of stock options | $ | 41 | | | $ | 1,512 | | | $ | 234 | |
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. The following weighted average assumptions were used for stock options granted during 2022, 2021, and 2020:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Volatility | 42.5% to 51.1% | | 40.3% to 49.6% | | 33.9% to 56.7% |
| Risk free interest rate | 1.2% to 3.0% | | 0.1% to 1.0% | | 0.2% to 1.6% |
| Expected life in years | 3.0 to 5.0 | | 2.0 to 4.0 | | 3.0 to 5.0 |
| Dividend yield | 2.1% | | 1.4% | | 1.2% |
| Weighted average fair value | $13.42 | | $13.30 | | $10.15 |
STEVEN MADDEN, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note I – Preferred Stock
The Company has authorized 5,000 shares of preferred stock. The Board of Directors has designated 60 shares of such preferred stock as Series A Junior Participating Preferred Stock (“Series A Preferred”). Holders of the shares of Series A Preferred are entitled to dividends equal to 1 times dividends declared or paid on the Company's common stock. Each share of Series A Preferred entitles the holder to 1 vote on all matters submitted to the holders of common stock. The Series A Preferred has a liquidation preference of $1 per share and is not redeemable by the Company. No shares of preferred stock have been issued.
Note J – 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 April 24, 2019, the Board of Directors approved the expansion of the Company's Share Repurchase Program for up to $200,000 in repurchases of the Company's common stock, which included the amount remaining under the prior authorization. On November 2, 2021, the Board of Directors approved an increase in the Company's share repurchase authorization of approximately $200,000, bringing the total authorization to $250,000, which included the amount remaining under the prior authorization. The Share Repurchase Program permits the Company to effect repurchases from time to time through a combination of open market repurchases, net settlements of employee stock awards or in privately negotiated transactions at such prices and times as are determined to be in the best interest of the Company. During the twelve months ended December 31, 2022, an aggregate of 3,604 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 data)
of $35.84, for an aggregate purchase price of approximately $129,152. As of December 31, 2022, approximately $94,398 remained available for future repurchases under the Share Repurchase Program.
Note C – Factor Receivable (continued)
UnderThe Steven Madden, Ltd. Amended and Restated 2006 Stock Incentive Plan (as further amended, the agreement,"2006 Plan"), which expired on April 6, 2019, and the Company can request advances from Rosenthal in amounts of up to 85% of aggregate receivables submitted to Rosenthal. The agreement providesSteven Madden, Ltd. 2019 Incentive Compensation Plan (the "2019 Plan") both provide the 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 $30,000 credit facilityfair market value equal to the employee's withholding tax obligation and/or option cost. During the twelve months ended December 31, 2022, an aggregate of 584 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 $33.75, for an aggregate purchase price of approximately $19,725.
Note K – Net Income/(Loss) Per Share of Common Stock
Basic net income/(loss) 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 2,109, 2,849 and 3,651 shares for the years ended December 31, 2022, 2021, and 2020, respectively. 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.
| | | | | | | | | | | | | | | | | | | | |
| (in thousands) | | Years Ended December 31, |
| | 2022 | | 2021 | | 2020(1) |
| Weighted average common shares outstanding: | | | | | | |
| Basic | | 76,021 | | | 78,442 | | | 78,635 | |
| Effect of dilutive securities: | | | | | | |
| Stock awards and options to purchase shares of common stock | | 2,048 | | | 3,186 | | | — | |
| Diluted | | 78,069 | | | 81,628 | | | 78,635 | |
(1) The year ended December 31, 2020 resulted in a $15,000 sub-limitnet loss; therefore, there was no difference in the weighted average number of common shares for basic and diluted loss per share as the effect of all potentially dilutive shares outstanding was anti-dilutive.
STEVEN MADDEN, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022, 2021, and 2020, options to purchase approximately 2, 5, and 89 shares of common stock, respectively, have been excluded from the calculation of diluted net income/(loss) per share, as the result would have been anti-dilutive. For the year ended December 31, 2022, 2021, and 2020, 46, 7, and 2,524 restricted shares, respectively, were excluded from the calculation of diluted net income/(loss) per share, 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 year ended December 31, 2022 and 2021, and, therefore, were excluded from the calculation of diluted net income per common share for the year ended December 31, 2022, 2021, and 2020. The maximum number of potentially dilutive shares that could be issued upon vesting for these performance awards was approximately 66, 17, and 300 as of December 31, 2022, 2021, and 2020 respectively. These amounts were also excluded from the computation of weighted average potentially dilutive securities.
Note L – Derivative Instruments
The Company uses derivative instruments, specifically, forward foreign exchange contracts, to manage the risk associated with the volatility of future cash flows. The foreign exchange contracts are used to mitigate the impact of exchange rate fluctuations on certain forecasted purchases of inventory and are designated as cash flow hedging instruments. As of December 31, 2022, the Company's entire net forward contracts hedging portfolio consisted of a notional amount of $74,869, with the fair value included on the Consolidated Balance Sheets in other current assets of $916 and other current liabilities of $1,241. For the twelve months ended December 31, 2022 and 2021, the Company's hedging activities were considered effective, and, thus, no ineffectiveness from hedging activities was recognized in the Consolidated Statements of Income/(Loss) during the year. These gains and losses recognized in Net income/(loss) are reported in Cost of sales (exclusive of depreciation and amortization) on the Consolidated Statements of Income/(Loss).
Note M – Leases
The following table presents the lease-related assets and liabilities recorded on the Consolidated Balance Sheets as of December 31, 2022 and 2021:
| | | | | | | | | | | | | | | | | |
| | | As of December 31, |
| (in thousands) | Classification on the Balance Sheet | | 2022 | | 2021 |
| Assets | | | | | |
| Noncurrent | Operating lease right-of-use asset | | $ | 90,264 | | | $ | 85,449 | |
| | | | | |
| Liabilities | | | | | |
| Current | Operating leases - current portion | | $ | 29,499 | | | $ | 30,759 | |
| Noncurrent | Operating leases - long-term portion | | 79,128 | | | 80,072 | |
| Total operating lease liabilities | | | $ | 108,627 | | | $ | 110,831 | |
| | | | | |
| Weighted-average remaining lease term | | | 4.6 years | | 4.6 years |
| Weighted-average discount rate | | | 4.4 | % | | 4.3 | % |
The following table presents the composition of lease costs during the years ended December 31, 2022, 2021 and 2020:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| (in thousands) | 2022 | | 2021 | | 2020 |
| Operating lease cost | $ | 33,724 | | | $ | 36,863 | | | $ | 42,368 | |
Variable lease cost | 7,753 | | | 18,206 | | | 13,412 | |
| Short-term lease cost | — | | | — | | | 238 | |
| Less: sublease income | 243 | | | 321 | | | 562 | |
| Total lease cost | $ | 41,234 | | | $ | 54,748 | | | $ | 55,456 | |
(1) For the year ended December 31, 2021 and 2020, the Company incurred expenses related to the COVID-19 lease amendments of $9,505 and $12,064, respectively, which were included in variable lease cost. There were no lease amendments for the year ended December 31, 2022.
STEVEN MADDEN, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The Company recorded impairment charges of $1,023 and $22,183 related to lease right-of-use assets for the year ended December 31, 2021 and 2020. For 2021, these impairment charges were recorded in the Direct-to-Consumer and Wholesale Accessories/Apparel segments. In 2020, the impairment charges were recorded in the Direct-to- Consumer segment. No such impairment charges were recorded in 2022.
The following presents supplemental cash and non-cash information related to the Company's Operating leases:
| | | | | | | | | | | |
| Years Ended December 31, |
| (in thousands) | 2022 | | 2021 |
| Cash paid for amounts included in the measurement of lease liabilities | | | |
| Operating cash flows used for operating leases | $ | 39,136 | | | $ | 31,870 | |
| Noncash transactions: | | | |
| Right-of-use asset obtained in exchange for new operating lease liabilities | $ | 36,450 | | | $ | 17,461 | |
Right-of-use asset amortization expense(1) | $ | 31,693 | | | $ | 32,371 | |
(1) Included in "Leases and other liabilities" in the Consolidated Statement of Cash Flows.
Future Minimum Lease Payments
The table below displays future minimum lease payments for each of the first five years and the total for the remaining years:
| | | | | |
| (in thousands) | As of
December 31, 2022 |
| 2023 | $ | 33,567 | |
| 2024 | 27,322 | |
| 2025 | 21,966 | |
| 2026 | 16,810 | |
| 2027 | 8,488 | |
| Thereafter | 12,870 | |
| Total minimum lease payments | 121,023 | |
| Less: interest | 12,396 | |
| Total lease liabilities | $ | 108,627 | |
Rent expense for the years ended December 31, 2022, 2021 and 2020 was approximately $49,321, $47,179 and $49,619, respectively.
STEVEN MADDEN, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note N – Income Taxes
The components of income/(loss) before income taxes were as follows:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| (in thousands) | 2022 | | 2021 | | 2020 |
| Domestic | $ | 188,265 | | | $ | 171,297 | | | $ | (63,025) | |
| Foreign | 94,055 | | | 70,771 | | | 33,040 | |
| $ | 282,320 | | | $ | 242,068 | | | $ | (29,985) | |
The components of provision/(benefit) for income taxes were as follows:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| (in thousands) | 2022 | | 2021 | | 2020 |
| Current: | | | | | |
| Federal | $ | 36,983 | | | $ | 32,983 | | | $ | (10,764) | |
| State and local | 6,057 | | | 3,711 | | | (545) | |
| Foreign | 18,462 | | | 11,635 | | | 7,958 | |
| 61,502 | | | 48,329 | | | (3,351) | |
| Deferred: | | | | | |
| Federal | 2,705 | | | (1,402) | | | (4,940) | |
| State and local | 466 | | | 1,888 | | | (2,962) | |
| Foreign | 430 | | | 794 | | | (451) | |
| 3,601 | | | 1,280 | | | (8,353) | |
| $ | 65,103 | | | $ | 49,609 | | | $ | (11,704) | |
A reconciliation between income taxes computed at the federal statutory rate and the effective tax rate is as follows:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| (in thousands) | 2022 | | 2021 | | 2020 |
| Income taxes at federal statutory rate | 21.0 | % | | 21.0 | % | | 21.0 | % |
| Effects of foreign operations | (0.2) | | | (0.8) | | | 10.3 | |
| Stock-based compensation | (0.5) | | | (2.4) | | | 11.8 | |
| State and local income taxes - net of federal income tax benefit | 2.0 | | | 2.1 | | | 12.9 | |
| Nondeductible items | 0.5 | | | 1.2 | | | (0.4) | |
| Impact of tax reform | — | | | — | | | 14.0 | |
| Global intangible low-taxed income ("GILTI") | — | | | — | | | (18.2) | |
| Valuation allowance | 0.1 | | | (0.5) | | | (9.3) | |
| | | | | |
| | | | | |
| Other | 0.2 | | | (0.1) | | | (3.1) | |
| Effective tax rate | 23.1 | % | | 20.5 | % | | 39.0 | % |
The primary changes between the Company’s effective tax rate for the year ended December 31, 2022 and 2021 are due to a lower tax benefit from the exercising and vesting of equity-based awards, and an increase in pre-tax income in jurisdictions with higher tax rates. The primary changes between the Company’s effective tax rate for the year ended December 31, 2021 and 2020 are due to the year-over-year benefit resulting from the exercising and vesting of share-based awards, a decrease in tax benefit related to a net operating loss carryback claim set forth by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), a decrease in the GILTI tax and an increase in pre-tax income in jurisdictions with higher tax rates.
STEVEN MADDEN, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The components of deferred tax assets and liabilities were as follows:
| | | | | | | | | | | |
| As of December 31, |
| (in thousands) | 2022 | | 2021 |
| Deferred tax assets | | | |
| Receivable allowances | $ | 7,049 | | | $ | 8,313 | |
| Inventory | 8,367 | | | 7,992 | |
| | | |
| Accrued expenses | 315 | | | 310 | |
| Deferred compensation | 6,461 | | | 6,486 | |
| | | |
| Net operating loss carryforwards | 5,685 | | | 6,129 | |
| Lease liability | 26,038 | | | 26,436 | |
| Other | 1,042 | | | 1,169 | |
| Gross deferred tax assets before valuation allowance | 54,957 | | | 56,835 | |
| | | |
| Less: valuation allowance | (3,948) | | | (3,753) | |
| Gross deferred tax assets after valuation allowance | 51,009 | | | 53,082 | |
| | | |
| Deferred tax liabilities | | | |
| Depreciation and amortization | (16,704) | | | (16,144) | |
| Unremitted earnings of foreign subsidiaries | (2,599) | | | (3,138) | |
| Right-of-use asset | (21,621) | | | (20,365) | |
| Amortization of goodwill | (7,599) | | | (7,578) | |
| Indefinite-lived intangibles | (4,654) | | | (4,654) | |
| Gross deferred tax liabilities | (53,177) | | | (51,879) | |
| | | |
| Net deferred tax (liabilities)/assets | $ | (2,168) | | | $ | 1,203 | |
The Company applies the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse.
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected future taxable income, and tax‑planning strategies in making this assessment.
The Company’s increase in valuation allowance of $195 is primarily due to an increase of net operating loss deferred tax assets in various foreign subsidiaries, which resulted in an aggregate valuation allowance of $3,948 for the year ended December 31, 2022.
A reconciliation of the beginning and ending amount of unrecognized tax benefits was as follows:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| (in thousands) | 2022 | | 2021 | | 2020 |
| Beginning Balance | $ | 1,145 | | | $ | 2,295 | | | $ | 1,150 | |
| Additions for tax positions of prior years | — | | | — | | | 1,145 | |
| | | | | |
| Reductions for tax positions of prior years | — | | | (1,150) | | | — | |
| | | | | |
| Ending Balance | $ | 1,145 | | | $ | 1,145 | | | $ | 2,295 | |
For the years ended December 31, 2022, 2021, and 2020 the total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is approximately $1,145, $1,145, and $2,295, in the aggregate, respectively. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense. Accrued interest and penalties on unrecognized tax benefits and interest and penalty expense was immaterial to the consolidated financial
STEVEN MADDEN, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
statements for all periods presented. It is reasonably possible that a reduction of the unrecognized tax benefits in a range of $0 to $1,100 may occur within the next twelve months.
The Company files income tax returns in the U.S., for federal, state, and local purposes, and in certain other foreign jurisdictions. The Company's tax years 2019 through 2022 remain open to examination by most taxing authorities. During 2017, the U.S. Internal Revenue Service completed its audit of the Company's 2014 U.S. income tax return.
The Company’s consolidated financial statements provide for any related tax liability on amounts that may be repatriated from foreign operations, aside from undistributed earnings of certain of the Company’s foreign subsidiaries that are intended to be indefinitely reinvested in operations outside the U.S. The deferred tax liability of $2,599 at December 31, 2022 reflects the withholding tax on amounts that may be repatriated from foreign operations.
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 will impact the Company’s stock repurchases effective January 1, 2023.
Note O – Commitments, Contingencies and Other
Legal Proceedings:
In the ordinary course of business, the Company has various pending cases involving contractual disputes, employee-related matters, distribution matters, product liability claims, intellectual property infringement and other matters. In the opinion of management, after consulting with legal counsel, the liabilities, if any, resulting from these legal proceedings should not have a material impact on the Company's financial condition, results of operations or cash flows. It is the policy of management to disclose the amount or range of reasonably possible losses in excess of recorded amounts.
Letters of Credit:
As of December 31, 2022, the Company had $504 in letters of credit outstanding unrelated to the Company's Credit Agreement.
License agreements:
In January 2018, the Company entered into a license agreement with Nine West Development LLC, subsequently acquired by WHP Global, for the right to manufacture, market and sell women's fashion footwear and handbags under the Anne Klein®, AK Sport®, AK Anne Klein Sport® and the Lion Head Design® trademarks. The agreement, unless extended, expires on June 30, 2023. The agreement requires that the Company pay the licensor a royalty equal to a percentage of net revenues and a minimum royalty in the event that specified net revenues targets are not achieved. In 2022, the Company entered into its second amendment to extend the term of this license agreement through December 31, 2026.
On February 9, 2011, the Company entered into a license agreement with Basic Properties America Inc. and BasicNet S.p.A, under which the Company has the right to use the Superga® trademark in connection with the sale and marketing of women's footwear. The agreement requires the Company to pay the licensor a royalty equal to a percentage of net revenues and a minimum royalty in the event that specified net revenues targets are not achieved. The Superga license was terminated as of December 31, 2022.
Future minimum royalty payments under all of the Company's license agreements are $5,437 for 2023 and $18,000 for 2024 through 2026. Royalty expenses are included in the “cost of goods” section of the Company's Consolidated Statements of Income/(Loss).
Concentrations:
The Company maintains cash and cash equivalents with various major financial institutions, which at times are in excess of the amount insured.
During the year ended December 31, 2022, 2021, and 2020, the Company did not purchase more than 10% of its merchandise from any single supplier. Total product purchases from vendors located in China for the year ended December 31, 2022, 2021, and 2020, were 78%, 79%, and 78%, respectively.
STEVEN MADDEN, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2022, the Company did not have any customers who accounted for more than 10% of total revenue. At December 31, 2022, three customers accounted for 20.6%, 16.2%, and 11.1% of total accounts receivable. The Company did not have any other customers who accounted for more than 10% of total accounts receivable.
At December 31, 2021, two customers represented approximately 14.0% and 10.6% of total revenue. At December 31, 2021, the same two customers accounted for 19.3% and 18.1% of total accounts receivable. The Company did not have any other customers who accounted for more than 10% of total revenue or any other customers who accounted for more than 10% of total accounts receivable.
At December 31, 2020, one customer represented approximately 13.9% of total revenue. At December 31, 2020, five customers accounted for 19.0%, 14.9%, 11.8%, 11.7%, and 10.3% of total accounts receivable. The Company did not have any other customers who accounted for more than 10% of total revenue or any other customers who accounted for more than 10% of total accounts receivable.
Purchases are made primarily in United States dollars.
Note P – Credit Agreement
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, upon a calculation that utilizes either(i) BSBY rate for the applicable interest period or (ii) the base rate (which is the highest of (a) the prime rate minus 0.5%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.
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 LIBOR plus 2.5%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
STEVEN MADDEN, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 December 31, 20172022, the Company had no cash borrowings and 2016, no borrowings or letters of credit were outstanding. Theoutstanding under the Credit Agreement.
Note Q – Factoring Agreement
In conjunction with the Credit Agreement described in Note P – Credit Agreement, on July 22, 2020, the Company also paysand 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 feebase commission of 0.20% of the gross invoice amount submittedof each receivable assigned for collection, plus certain additional fees and expenses, subject to Rosenthal. With respect to receivables related to the Company's private label business, the fee is 0.14% of the gross invoice amount.certain minimum annual commissions. Rosenthal assumeswill generally assume the credit risk onresulting from a substantial portioncustomer’s financial inability to make payment of credit-approved receivables, which are classified as Factor Receivables. The initial term of the receivables thatFactoring Agreement is twelve months, subject to automatic renewal for additional twelve-month periods, and the Company submits to itFactoring 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 extent of any loans made toAgent under the Company, Rosenthal maintains a lien on the Company’s receivablesCredit Agreement to secure obligations arising under the Company’s obligations. Rosenthal services the collection of the Company's accounts receivable. Funds collected by Rosenthal are applied against advances owed to Rosenthal (if any), and the balance is due and payable to the Company, net of any fees. The allowance against “factor receivables” is a projected provision based on certain formulas and prior approvals for markdowns, allowances, discounts, advertising and other deductions that customers may deduct against their payments.Credit Agreement.
Note DR – Note Receivable – Related Party
On June 25, 2007, the Company made a loan to SteveSteven Madden, its Creative and Design Chief and a principal stockholder of the Company, in the amount of $3,000 in order for Mr. Madden to satisfy a personal tax obligation resulting from the exercise of stock options that were due to expire and to retain the underlying Company common stock. The loan, as amended, is secured by non-company securities held in Mr. Madden's brokerage account. The Company has agreed to forgive a portion of the note as long as Mr. Madden remains an employee of the Company through the note's maturity on December 31, 2023. For the years ended December 31, 2017, 20162022, 2021, and 20152020 the Company also recorded a charge in the amount of $409 for each year, respectively, to write-off the required one-tenth of the principal amount of the secured promissory note, which was partially offset by imputed interest income of $55, $63$16, $23, and $71,$31, respectively.
Note E – Fair Value Measurement
The accounting guidance under Accounting Standards Codification “Fair Value Measurements and Disclosures” (“ASC 820-10”) provides guidance for disclosures about the fair value of certain of its assets and liabilities. ASC 820-10 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. ASC 820-10 utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. A brief description of those three levels is as follows:
Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.
Level 3: Significant unobservable inputs.
The Company’s financial assets and liabilities, subject to fair value measurements, as of December 31, 2017 and 2016 are as follows:
STEVEN MADDEN, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
($ in thousands, except share and per share data)
Note ES – Fair Value Measurement (continued)Operating Segment Information
|
| | | | | | | | | | | | | | | | |
| | | | | December 31, 2017 |
| | | | | Fair Value Measurements Using Fair Value Hierarchy |
| | | Fair value | | Level 1 | | Level 2 | | Level 3 |
| Assets: | | |
| | |
| | |
| | |
|
| Cash equivalents | | $ | 58,436 |
| | $ | 58,436 |
| | $ | — |
| | $ | — |
|
| Current marketable securities – available for sale | | 64,027 |
| | 64,027 |
| | — |
| | — |
|
| Long-term marketable securities – available for sale | | 29,523 |
| | 29,523 |
| | — |
| | — |
|
| Total assets | | $ | 151,986 |
| | $ | 151,986 |
| | $ | — |
| | $ | — |
|
| Liabilities: | | |
| | |
| | |
| | |
|
| Contingent consideration | | $ | 10,000 |
| | $ | — |
| | $ | — |
| | $ | 10,000 |
|
| Forward contracts | | 783 |
| | — |
| | 783 |
| | — |
|
| Total liabilities | | $ | 10,783 |
| | $ | — |
| | $ | 783 |
| | $ | 10,000 |
|
|
| | | | | | | | | | | | | | | | |
| | | | | December 31, 2016 |
| | | | | Fair Value Measurements Using Fair Value Hierarchy |
| | | Fair value | | Level 1 | | Level 2 | | Level 3 |
| Assets: | | |
| | |
| | |
| | |
|
| Cash equivalents | | $ | 3,309 |
| | $ | 3,309 |
| | $ | — |
| | $ | — |
|
| Current marketable securities – available for sale | | 39,495 |
| | 39,495 |
| | — |
| | — |
|
| Long-term marketable securities – available for sale | | 70,559 |
| | 70,559 |
| | — |
| | — |
|
| Forward contracts | | 191 |
| | — |
| | 191 |
| | — |
|
| Total assets | | $ | 113,554 |
| | $ | 113,363 |
| | $ | 191 |
| | $ | — |
|
| Liabilities: | | |
| | |
| | |
| | |
|
| Contingent consideration | | $ | 7,948 |
| | $ | — |
| | $ | — |
| | $ | 7,948 |
|
| Total liabilities | | $ | 7,948 |
| | $ | — |
| | $ | — |
| | $ | 7,948 |
|
The Company operates the following operating segments, which are presented as reportable segments: Wholesale Footwear, Wholesale Accessories/Apparel, Direct-to- Consumer, First Cost 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, which was referred to as the Retail segment in previous filings, consists of Steve Madden® and Dolce Vita® full-price retail stores, Steve Madden® outlet stores, and our directly-operated digital e-commerce websites. Our retail stores are located in regional malls and shopping centers, as well as high streets in major cities across the United States, Canada, Mexico, Israel, South Africa, Taiwan, China, and the Middle East. Our First Cost segment represents commission based activities where the Company serves as a buying agent for footwear products under private labels for select national chains, and value-priced retailers. 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 level 3 balance consists of contingent considerationCorporate activities do not constitute a reportable segment and include costs not directly attributable to the segments that are primarily related to costs associated with corporate executives, corporate finance, corporate social responsibility, legal, human resources, information technology, cyber security and other shared costs. The Chief Operating Decision Maker does not review asset information by segment, therefore we do not present assets in this note.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | Wholesale Footwear | | Wholesale Accessories/Apparel | | Total Wholesale | | Direct-to- Consumer | | First Cost | | Licensing | | Corporate (1) | | Consolidated |
| For the Year Ended December 31, 2022 | | | | | | | | | | | | | | | |
| Total revenue | $ | 1,194,890 | | | $ | 394,676 | | | $ | 1,589,566 | | | $ | 521,729 | | | $ | 916 | | | $ | 9,798 | | | $ | — | | | $ | 2,122,009 | |
| Gross profit | 431,081 | | | 100,085 | | | 531,166 | | | 331,956 | | | 916 | | | 9,798 | | | — | | | 873,836 | |
| Income/(loss) from operations | 264,958 | | | 29,775 | | | 294,733 | | | 67,649 | | | 766 | | | 7,854 | | | (89,358) | | | 281,644 | |
| Depreciation and amortization | 2,433 | | | 9,439 | | | 11,872 | | | 3,740 | | | — | | | — | | | 4,964 | | | 20,576 | |
| | | | | | | | | | | | | | | |
| Capital expenditures | 802 | | | 277 | | | 1,079 | | | 6,380 | | | 4 | | | — | | | 8,888 | | | 16,351 | |
| For the Year Ended December 31, 2021 | | | | | | | | | | | | | | | |
| Total revenue | $ | 1,022,322 | | | $ | 343,675 | | | $ | 1,365,997 | | | $ | 487,906 | | | $ | 2,346 | | | $ | 9,893 | | | $ | — | | | $ | 1,866,142 | |
| Gross profit | 345,167 | | | 94,675 | | | 439,842 | | | 315,416 | | | 2,346 | | | 9,893 | | | — | | | 767,497 | |
| Income/(loss) from operations | 217,163 | | | 26,628 | | | 243,791 | | | 74,542 | | | 1,971 | | | 8,108 | | | (84,815) | | | 243,597 | |
| Depreciation and amortization | 2,946 | | | 2,769 | | | 5,715 | | | 3,976 | | | — | | | — | | | 5,517 | | | 15,208 | |
| | | | | | | | | | | | | | | |
| Capital expenditures | 1,051 | | | 807 | | | 1,858 | | | 1,156 | | | 9 | | | — | | | 3,585 | | | 6,608 | |
| For the Year Ended December 31, 2020 | | | | | | | | | | | | | | | |
| Total revenue | $ | 713,662 | | | $ | 235,892 | | | $ | 949,554 | | | $ | 239,389 | | | $ | 3,902 | | | $ | 8,969 | | | $ | — | | | $ | 1,201,814 | |
| Gross profit | 226,557 | | | 70,908 | | | 297,465 | | | 154,205 | | | 3,902 | | | 8,969 | | | — | | | 464,541 | |
| Income/(loss) from operations | 91,887 | | | (2,453) | | | 89,434 | | | (58,889) | | | 2,594 | | | 5,828 | | | (70,572) | | | (31,605) | |
| Depreciation and amortization | 3,143 | | | 2,586 | | | 5,729 | | | 6,696 | | | 92 | | | — | | | 4,843 | | | 17,360 | |
| | | | | | | | | | | | | | | |
| Capital expenditures | 1,206 | | | 164 | | | 1,370 | | | 1,472 | | | — | | | — | | | 3,720 | | | 6,562 | |
(1) Corporate does not constitute a reportable segment and includes costs not directly attributable to the Schwartz & Benjamin acquisition. The changes in our level 3 liabilities for the years ended December 31, 2017segments. These costs are primarily related to expenses associated with corporate executives, corporate finance, corporate social responsibility, legal, human resources, information technology, cyber security and 2016 are as follows:other shared services.
STEVEN MADDEN, LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
($ in thousands, except share and per share data)
Note E – Fair Value Measurement (continued)
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Balance at January 1, | | Payments | | Accrued Interest | | Acquisitions | | Change in estimate | | Foreign Currency Translation | | Balance at December 31, |
| 2017 | | | | | | | | | | | | | |
| Liabilities: | | | | | | | | | | | | | |
| Contingent consideration | $ | 7,948 |
| | (7,359 | ) | | — |
| | 20,617 |
| | (11,206 | ) | | — |
| | $ | 10,000 |
|
| | | | | | | | | | | | | | |
| 2016 | | | | | | | | | | | | | |
| Liabilities: | | | | | | | | | | | | | |
| Contingent consideration | $ | 24,775 |
| | (16,402 | ) | | — |
| | — |
| | (425 | ) | | — |
| | $ | 7,948 |
|
The change in estimate of the contingent consideration as of December 31, 2017 and 2016 of $11,206 and $425 has been reflected as a reduction in operating expenses on the Consolidated Statement of Income.
Forward contracts are entered into to manage the risk associated with the volatility of future cash flows denominated in foreign currencies. Fair value of these instruments are based on observable market transactions of spot and forward rates.
The Company has recorded a liability for potential contingent consideration in connection with the January 30, 2017 acquisition of Schwartz & Benjamin. Pursuant to the terms of an earn-out provision contained in the equity purchase agreement, as amended, between the Company and the sellers of Schwartz & Benjamin, earn-out payments are based on the performance of certain specified license agreements. The fair value of the contingent payments was estimated using the present value of the payments based on management’s projections of the financial results of Schwartz & Benjamin during the earn-out period.
The Company recorded a liability for potential contingent consideration in connection with the December 30, 2014 acquisition of all of the outstanding capital stock of Trendy Imports S.A. de C.V., Comercial Diecisiette S.A. de C.V., and Maximus Designer Shoes S.A. de C.V. (together "SM Mexico"). Pursuant to the terms of an earn-out agreement between the Company and the seller
of SM Mexico, earn-out payments were due annually to the seller of SM Mexico based on the financial performance of SM Mexico for each of the twelve-month periods ending on December 31, 2015 and 2016, inclusive. The fair value of the contingent payments was estimated using the present value of management's projections of the financial results of SM Mexico during the earn-out period. The first earn-out payment of $3,482 for the period ended December 31, 2015 was paid to the seller of SM Mexico in the first quarter of 2016. The earn-out payment of $4,618 for the period ended December 31, 2016 was paid to the seller of SM Mexico in 2017.
The Company recorded a liability for potential contingent consideration in connection with the February 21, 2012 acquisition of all of the assets of Steve Madden Canada Inc., Steve Madden Retail Canada Inc., Pasa Agency Inc. and Gelati Imports Inc. (collectively, “SM Canada”). Pursuant to the terms of an earn-out agreement between the Company and the seller of SM Canada, earn-out payments were due annually to the seller of SM Canada based on the financial performance of SM Canada for each of the 12-month periods ending on March 31, 2013 through 2017, inclusive. The fair value of the contingent payments was estimated using the present value of management’s projections of the financial results of SM Canada during the earn-out period. The final earn-out payment of $2,741 for the period ended March 31, 2017 was paid to the seller of SM Canada in 2017.
Accounting guidance permits entities to choose to measure financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The accounting guidance also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that chose different measurement attributes for similar assets and liabilities. The Company has elected not to measure any eligible items at fair value.
The carrying value of certain financial instruments such as accounts receivable, factor accounts receivable and accounts payable approximates their fair values due to the short-term nature of their underlying terms. The fair values of investment in marketable securities available for sale are determined by reference to publicly quoted prices in an active market. Fair value of the notes receivable held by the Company approximates their carrying value based upon their imputed or actual interest rate, which approximates applicable current market interest rates.
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
($ in thousands, except share and per share data)
Note F - Property and Equipment
The major classes of assets and total accumulated depreciation and amortization are as follows:
|
| | | | | | | | | |
| | | | December 31, |
| | Average Useful Life | | 2017 | | 2016 |
| Land and building | | | $ | 767 |
| | $ | 767 |
|
| Leasehold improvements | | | 81,554 |
| | 79,165 |
|
| Machinery and equipment | 10 years | | 7,132 |
| | 11,112 |
|
| Furniture and fixtures | 5 years | | 8,629 |
| | 8,881 |
|
| Computer equipment and software | 3 to 5 years | | 58,448 |
| | 57,855 |
|
| | | | 156,530 |
| | 157,780 |
|
| Less accumulated depreciation and amortization | | | (85,032 | ) | | (85,399 | ) |
| Property and equipment - net | | | $ | 71,498 |
| | $ | 72,381 |
|
Depreciation and amortization expense related to property and equipment included in operating expenses amounted to approximately $15,160 in 2017, $14,346 in 2016 and $13,237 in 2015.
Note G – Goodwill and Intangible Assets
The following is a summary of the carrying amount of goodwill by segment as of December 31, 2017 and 2016:
|
| | | | | | | | | | | | | | | | |
| | | Wholesale | | |
| | Net Carrying |
| | | Footwear | | Accessories | | Retail | | Amount |
| Balance at January 1, 2016 | | $ | 73,018 |
| | $ | 49,324 |
| | $ | 14,755 |
| | $ | 137,097 |
|
| Translation and other | | (757 | ) | | — |
| | (629 | ) | | (1,386 | ) |
| Balance at December 31, 2016 | | 72,261 |
| | 49,324 |
| | 14,126 |
| | 135,711 |
|
| Acquisition of Schwartz & Benjamin | | 11,882 |
| | — |
| | — |
| | 11,882 |
|
| Translation and other | | 719 |
| | — |
| | 226 |
| | 945 |
|
| Balance at December 31, 2017 | | $ | 84,862 |
| | $ | 49,324 |
| | $ | 14,352 |
| | $ | 148,538 |
|
The following table details identifiable intangible assets as of December 31, 2017 and 2016:
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
($ in thousands, except share and per share data)
Note G – Goodwill and Intangible Assets (continued)
|
| | | | | | | | | | | | | | | | | | |
| | | 2017 |
| | | Estimated Lives | | Cost Basis | | Accumulated Amortization (1) | | Impairment (2) | | Net Carrying Amount |
| Trade names | | 6–10 years | | $ | 9,220 |
| | $ | 4,760 |
| | $ | — |
| | $ | 4,460 |
|
| Customer relationships | | 10 years | | 47,019 |
| | 24,127 |
| | — |
| | 22,892 |
|
| License agreements | | 3–6 years | | 5,600 |
| | 5,600 |
| | — |
| | — |
|
| Non-compete agreement | | 5 years | | 2,440 |
| | 2,375 |
| | — |
| | 65 |
|
| Re-acquired right | | 2 years | | 4,200 |
| | 4,200 |
| | — |
| | — |
|
| Other | | 3 years | | 14 |
| | 14 |
| | — |
| | — |
|
| | | | | 68,493 |
| | 41,076 |
| | — |
| | 27,417 |
|
| Re-acquired right | | indefinite | | 35,200 |
| | 7,601 |
| | — |
| | 27,599 |
|
| Trade names | | indefinite | | 100,333 |
| | — |
| | 4,045 |
| | 96,288 |
|
| | | | | $ | 204,026 |
| | $ | 48,677 |
| | $ | 4,045 |
| | $ | 151,304 |
|
| (1) Includes the effect of foreign currency translation related primarily to the changes in the Canadian dollar and Mexican peso in relation to the U.S. dollar. |
(2) An initial impairment charge of $3,045 was recorded in the first quarter of 2015, and a final impairment charge of $1,000 was recorded in the fourth quarter of 2017 related to the Company's Wild Pair trademark. The impairment was triggered by a loss of future anticipated cash flows from a significant customer. |
|
| | | | | | | | | | | | | | | | | | |
| | | 2016 |
| | | Estimated Lives | | Cost Basis | | Accumulated Amortization (1) | | Impairment (2) | | Net Carrying Amount |
| Trade names | | 6–10 years | | $ | 4,590 |
| | $ | 3,335 |
| | $ | — |
| | $ | 1,255 |
|
| Customer relationships | | 10 years | | 41,509 |
| | 21,341 |
| | — |
| | 20,168 |
|
| License agreements | | 3–6 years | | 5,600 |
| | 5,600 |
| | — |
| | — |
|
| Non-compete agreement | | 5 years | | 2,440 |
| | 2,426 |
| | — |
| | 14 |
|
| Re-acquired right | | 2 years | | 4,200 |
| | 4,200 |
| | — |
| | — |
|
| Other | | 3 years | | 14 |
| | 14 |
| | — |
| | — |
|
| | | | | 58,353 |
| | 36,916 |
| | — |
| | 21,437 |
|
| Re-acquired right | | indefinite | | 35,200 |
| | 9,539 |
| | — |
| | 25,661 |
|
| Trade names | | indefinite | | 100,333 |
| | — |
| | 3,045 |
| | 97,288 |
|
| | | | | $ | 193,886 |
| | $ | 46,455 |
| | $ | 3,045 |
| | $ | 144,386 |
|
| (1) Includes the effect of foreign currency translation related primarily to the changes in the Canadian dollar and Mexican peso in relation to the U.S. dollar. |
| (2) An impairment charge of $3,045 was recorded in the first quarter of 2015 related to the Company's Wild Pair trademark. The impairment was triggered by a loss of future anticipated cash flows from a significant customer. |
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
($ in thousands, except share and per share data)
Note G – Goodwill and Intangible Assets (continued)
The amortization of intangible assets amounted to $5,245 for 2017, $5,522 for 2016 and $6,145 for 2015 and is included in operating expenses on the Company's Consolidated Statements of Income. The estimated future amortization expense for intangibles is as follows:
|
| | | |
| 2018 | $ | 4,621 |
|
| 2019 | 4,547 |
|
| 2020 | 3,721 |
|
| 2021 | 2,095 |
|
| 2022 | 1,563 |
|
| Thereafter | 10,870 |
|
| Total | $ | 27,417 |
|
Note H – Stock-Based Compensation
In March 2006, the Board of Directors of the Company approved the Steven Madden, Ltd. 2006 Stock Incentive Plan (the “Plan”) under which nonqualified stock options, stock appreciation rights, performance shares, restricted stock, other stock-based awards and performance-based cash awards may be granted to employees, consultants and non-employee directors. The Company’s stockholders approved the Plan on May 26, 2006. The stockholders have subsequently approved successive amendments of the Plan, most recently on May 25, 2012, when the stockholders approved a third amendment to the Plan that increased the maximum number of shares that may be issued under the Plan to 23,466,000. The following table summarizes the number of shares of common stock authorized for use under the Plan, the number of stock-based awards granted (net of expired or cancelled awards) under the Plan and the number of shares of common stock available for the grant of stock-based awards under the Plan:
|
| | |
Common stock authorized | 23,466,000 |
|
Stock-based awards, including restricted stock and stock options granted, net of expired or cancelled | (21,818,000 | ) |
Common stock available for grant of stock-based awards as of December 31, 2017 | 1,648,000 |
|
In accordance with accounting guidance relating to stock-based compensation, the Company records compensation for all awards to employees based on the fair value of options and restricted stock on the date of grant. Equity-based compensation is included in operating expenses on the Company's Consolidated Statements of Income. For the years ended December 31, 2017, 2016 and 2015, total equity-based compensation was as follows:
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Restricted stock | $ | 16,616 |
| | $ | 16,494 |
| | $ | 15,543 |
|
| Stock options | 4,231 |
| | 3,015 |
| | 3,155 |
|
| Total | $ | 20,847 |
| | $ | 19,509 |
| | $ | 18,698 |
|
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
($ in thousands, except share and per share data)
Note H – Stock-Based Compensation (continued)
For the year ended December 31, 2015, the Company classified cash flows of $10,510 resulting from the tax benefit from tax deductions in excess of the compensation costs recognized for those options (tax benefits) as financing cash flows. During the third quarter of 2016, the Company adopted Accounting Standards Update No. 2016-09 ("ASU 2016-09"), Improvements to Employee Share-Based Payment Accounting which changes the accounting for certain aspects of share-based payments to employees (refer to Note Q). As a result of the adoption of ASU 2016-09, the Company classifies cash flows resulting from tax benefits as operating cash flows for the years ended December 31, 2017 and 2016. For the years ended December 31, 2017 and 2016, the Company realized a tax benefit from stock-based compensation of$4,019 and $5,244, respectively.
Stock Options
The total intrinsic value of options exercised during 2017, 2016 and 2015 amounted to $9,936, $16,983 and $12,433 respectively. During the years ended December 31, 2017, 2016 and 2015, 409,522 options with a weighted average exercise price of $34.02, 322,022 options with a weighted average exercise price of $32.37 and 455,528 options with a weighted average exercise price of $27.27 vested, respectively. As of December 31, 2017, there were unvested options relating to 1,241,187 shares of common stock with a total of $8,426of unrecognized compensation cost and an average vesting period of 3.2 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. Historically, with the exception of a special dividend paid in each of November 2005 and November 2006, the Company historically has not paid regular cash dividends and, thus, the expected dividend rate is assumed to be zero. The following weighted average assumptions were used for stock options granted:
|
| | | | | | |
| | | 2017 | | 2016 | | 2015 |
| Volatility | | 23% to 26% | | 22% to 26% | | 22% to 28% |
| Risk-free interest rate | | 1.48% to 1.99% | | 0.86% to 1.90% | | 0.99% to 1.60% |
| Expected life in years | | 3 to 5 | | 3 to 5 | | 3 to 5 |
| Dividend yield | | 0.00% | | 0.00% | | 0.00% |
| Weighted average fair value | | $8.91 | | $7.11 | | $8.81 |
Activity relating to stock options granted under the Company’s plans and outside the plans during the three years ended December 31, 2017 is as follows:
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
($ in thousands, except share and per share data)
Note H – Stock-Based Compensation (continued)
|
| | | | | | | | | | | | | |
| | | Number of Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term | | Aggregate Intrinsic Value |
| Outstanding at January 1, 2015 | | 3,428,000 |
| | $ | 19.48 |
| | | | |
|
| Granted | | 69,000 |
| | 36.59 |
| | | | |
|
| Exercised | | (1,460,000 | ) | | 14.59 |
| | | | |
|
| Expired/Forfeited | | (21,000 | ) | | 28.49 |
| | | | |
|
| Outstanding at December 31, 2015 | | 2,016,000 |
| | 23.51 |
| | | | |
| Granted | | 262,000 |
| | 33.86 |
| | | | |
| Exercised | | (746,000 | ) | | 14.36 |
| | | | |
| Expired/Forfeited | | (33,000 | ) | | 30.59 |
| | | | |
| Outstanding at December 31, 2016 | | 1,499,000 |
| | 29.72 |
| | | | |
| Granted | | 1,062,000 |
| | 37.55 |
| | | | |
| Exercised | | (655,000 | ) | | 24.73 |
| | | | |
| Expired/Forfeited | | (9,000 | ) | | 35.23 |
| | | | |
| Outstanding at December 31, 2017 | | 1,897,000 |
| | $ | 35.80 |
| | 4.9 years | | $ | 20,680 |
|
| Exercisable at December 31, 2017 | | 656,000 |
| | $ | 33.67 |
| | 3.1 years | | $ | 8,540 |
|
The following table summarizes information about stock options at December 31, 2017:
|
| | | | | | | | | | | |
| | Options Outstanding | | Options Exercisable |
| Range of Exercise Price | Number Outstanding | | Weighted Average Remaining Contractual Life (in Years) | | Weighted Average Exercise Price | | Number Exercisable | | Weighted Average Exercise Price |
| $19.70 to $26.95 | 9,051 |
| | 1.2 | | $22.71 | | 9,056 |
| | $22.71 |
| $27.03 to $29.45 | 80,309 |
| | 1.8 | | 28.64 | | 80,352 |
| | 28.64 |
| $30.19 to $33.99 | 263,045 |
| | 3.1 | | 31.60 | | 181,717 |
| | 31.66 |
| $34.06 to $38.05 | 1,359,071 |
| | 5.3 | | 36.53 | | 328,974 |
| | 35.25 |
| $38.96 to $43.30 | 185,524 |
| | 6.0 | | 40.11 | | 55,901 |
| | 39.96 |
| | 1,897,000 |
| | 4.9 | | $35.80 | | 656,000 |
| | $33.67 |
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
($ in thousands, except share and per share data)
Note H – Stock-Based Compensation (continued)
Restricted Stock
The following table summarizes restricted stock activity during the three years ended December 31, 2017:
|
| | | | | | | |
| | | Number of Shares | | Weighted Average Fair Value at Grant Date |
| Outstanding at January 1, 2015 | | 4,067,000 |
| | $ | 24.69 |
|
| Granted | | 361,000 |
| | 35.71 |
|
| Vested | | (304,000 | ) | | 23.24 |
|
| Forfeited | | (69,000 | ) | | 34.23 |
|
| Outstanding at December 31, 2015 | | 4,055,000 |
| | 25.32 |
|
| Granted | | 434,000 |
| | 34.30 |
|
| Vested | | (276,000 | ) | | 30.28 |
|
| Forfeited | | (22,000 | ) | | 33.45 |
|
| Outstanding at December 31, 2016 | | 4,191,000 |
| | 25.93 |
|
| Granted | | 275,000 |
| | 37.67 |
|
| Vested | | (508,000 | ) | | 30.58 |
|
| Forfeited | | (42,000 | ) | | 35.47 |
|
| Outstanding at December 31, 2017 | | 3,916,000 |
| | $ | 26.05 |
|
| | | | | |
As of December 31, 2017, there was $63,140 of total unrecognized compensation cost related to restricted stock awards granted under the Plan. This cost is expected to be recognized over a weighted average period of 5.4 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. The fair value of the restricted stock that vested during the years ended December 31, 2017, 2016 and 2015 was $21,549,$9,758 and $6,980, respectively.
On January 3, 2012, the Company and its Creative and Design Chief, Steven Madden, entered into an amendment of Mr. Madden’s existing employment agreement, pursuant to which, on February 8, 2012, Mr. Madden was granted 1,463,057 restricted shares of the Company’s common stock at the then market price of $27.34, which will vest in equal annual installments over a seven-year period commencing on December 31, 2017 and, thereafter, on each December 31 through December 31, 2023, subject to Mr. Madden’s continued employment on each such vesting date. On June 30, 2012, Mr. Madden exercised his right under his employment agreement to receive an additional restricted stock award, and, on July 3, 2012, he was granted 1,893,342 restricted shares of the Company's common stock at the then market price of $21.13, which vests in equal annual installments over a six-year period commencing on December 31, 2018 and, thereafter, on each December 31 through December 31, 2023, subject to Mr. Madden’s continued employment on each such vesting date. On July 20, 2017, pursuant to the employment agreement, Mr. Madden was granted an option to purchase 150,000 shares of the Company's common stock at an exercise price of $40.15 per share, which option is exercisable in equal quarterly installments commencing on October 20, 2017. On March 1, 2017, pursuant to his employment agreement, Mr. Madden was granted an option to purchase 750,000 shares of the Company’s common stock at an exercise price of $37.35 per share, which option is exercisable in equal annual installments over a five-year period commencing on the first anniversary of the grant date.
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
($ in thousands, except share and per share data)
Note I - Preferred Stock
The Company has authorized 5,000,000 shares of preferred stock. The Board of Directors has designated 60,000 shares of such preferred stock as Series A Junior Participating Preferred Stock (“Series A Preferred”). Holders of the shares of Series A Preferred are entitled to dividends equal to 1,000 times dividends declared or paid on the Company's common stock. Each share of Series A Preferred entitles the holder to 1,000 votes on all matters submitted to the holders of common stock. The Series A Preferred has a liquidation preference of $1,000 per share, and is not redeemable by the Company. No shares of preferred stock have been issued.
Note J - 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, most recently on July 28, 2017 when the Board of Directors approved the extension of the Share Repurchase Program for an additional $200,000 in repurchases of the Company's common stock. 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 twelve months ended December 31, 2017, an aggregate of 2,253,802 shares of the Company's common stock was repurchased under the Share Repurchase Program, at an average price per share of $37.62, for an aggregate purchase price of approximately $84,783. As of December 31, 2017, approximately $180,861 remained available for future repurchases under the Share Repurchase Program.
The Steven Madden, Ltd. 2006 Stock Incentive Plan provides the 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 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 minimum statutory tax withholding rate that could be imposed on the transaction. During the twelve months ended December 31, 2017, an aggregate of 346,820 shares were withheld in connection with the settlement of vested restricted stock to satisfy tax withholding requirements, at an average price per share of $42.18, for an aggregate purchase price of approximately $14,629.
Note K - Derivative Instruments
The Company uses derivative instruments, specifically, forward foreign exchange contracts, to manage the risk associated with the volatility of future cash flows. The forward foreign exchange contracts will be used to mitigate the impact of exchange rate fluctuations on forecasted purchases of inventory and are designated as cash flow hedging instruments. The Company enters into forward contracts with terms of no more than two years. As of December 31, 2017, $623 of losses related to cash flow hedges are recorded in accumulated other comprehensive income, net of taxes and are expected to be recognized in earnings at the same time the hedged items affect earnings. As of December 31, 2017, the fair value of the Company's foreign currency derivatives, which is included on the Consolidated Balance Sheet in accrued expenses, was $783. As of December 31, 2016, $191 ofgains related to cash flow hedges were recorded in accumulated other comprehensive income, net of taxes and were recognized in earnings at the same time the hedged items affected earnings. As of December 31, 2017 and 2016, none of the Company's hedging activities were considered ineffective and thus no gains and losses relating to ineffectiveness on its hedging activities were recognized in the Consolidated Statements of Income. For the year ended December 31, 2017 losses of $57 were reclassified from accumulated other comprehensive income and recognized in the Consolidated Statements of Income in cost of sales as compared to losses of $472 for the year ended December 31, 2016.
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
($ in thousands, except share and per share data)
Note L - Operating Leases
The Company leases office, showroom, warehouse and retail facilities under noncancelable operating leases with terms expiring at various datesthrough 2030.Future minimum annual lease payments under noncancelable operating leases consist of the following at December 31:
|
| | | |
| 2018 | $ | 44,629 |
|
| 2019 | 40,510 |
|
| 2020 | 38,005 |
|
| 2021 | 32,440 |
|
| 2022 | 26,720 |
|
| Thereafter | 66,972 |
|
| Total | $ | 249,276 |
|
A majority of the retail store leases provide for contingent rental payments if gross sales exceed certain targets. In addition, many of the leases contain rent escalation clauses to compensate for increases in operating costs and real estate taxes. Rent expense for the years ended December 31, 2017, 2016 and 2015 was approximately $56,027,$52,294 and $47,710, respectively. Included in such amounts are contingent rents of $424, $238 and $157 in 2017, 2016 and 2015, respectively.
Rent expense is calculated by amortizing total base rental payments (net of any rental abatements, construction allowances and other rental concessions), on a straight-line basis, over the lease term. Accordingly, rent expense charged to operations differs from rent paid resulting in the Company recording deferred rent.
Note M - Income Taxes
The components of income before income taxes are as follows:
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Domestic | $ | 124,472 |
| | $ | 110,526 |
| | $ | 81,785 |
|
| Foreign | 47,855 |
| | 60,474 |
| | 90,681 |
|
| | $ | 172,327 |
| | $ | 171,000 |
| | $ | 172,466 |
|
The components of provision for income taxes for all periods presented were as follows:
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
($ in thousands, except share and per share data)
Note M - Income Taxes (continued)
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Current: | | | | | |
| Federal | $ | 56,836 |
| | $ | 47,655 |
| | $ | 24,838 |
|
| State and local | 5,746 |
| | 6,063 |
| | 4,136 |
|
| Foreign | 10,773 |
| | 3,270 |
| | 13,960 |
|
| | 73,355 |
| | 56,988 |
| | 42,934 |
|
| Deferred: | | | | | |
| Federal | (22,061 | ) | | (7,050 | ) | | 16,976 |
|
| State and local | 800 |
| | 153 |
| | 1,961 |
|
| Foreign | 1,095 |
| | (365 | ) | | (3,060 | ) |
| | (20,166 | ) | | (7,262 | ) | | 15,877 |
|
| | $ | 53,189 |
| | $ | 49,726 |
| | $ | 58,811 |
|
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law making significant changes to the Internal Revenue Code of 1986, as amended. Changes include, but are not limited to, a reduction in the U.S. corporate statutory tax rate from 35% to 21% effective for tax years beginning after December 31, 2017, the transition from a worldwide tax system to a territorial regime, and a one-time transition tax on the deemed repatriation of cumulative foreign earnings as of December 31, 2017. The Company has calculated its best estimate of the impact of the Tax Act in its year end income tax provision in accordance with its understanding of the Tax Act and guidance available as of the filing of this Annual Report on Form 10-K, and as a result recorded $7,599 as an additional net income tax benefit in the fourth quarter of 2017, the period in which the legislation was enacted. The provisional amount related to the remeasurement of certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future resulted in a $2,315 expense. The provisional amount, comprised of a one-time transition tax on the mandatory deemed repatriation of foreign earnings, resulted in a $9,914 benefit (consisting of a $21,994 tax expense, offset by a $31,908 tax benefit from reversal of existing deferred tax liability on unremitted earnings of foreign subsidiaries) based on cumulative foreign earnings of $310,134. In accordance with Staff Accounting Bulletin No. 118, any adjustments to these provisional amounts will be reported as a component of the Income Tax Provision (Benefit) during the reporting period in which any such adjustments are determined, all of which will be reported no later than the fourth quarter of 2018. The Company continues to evaluate the impacts of the Tax Act on its indefinite reinvestment assertion, as further discussed below.
The Company is subject to the provisions of the FASB ASC 740-10, Income Taxes, which requires that the effect on deferred tax assets and liabilities of a change in tax rates be recognized in the period the tax rate change was enacted. However, in December of 2017, the SEC staff issued Staff Accounting Bulletin 118 which provides that companies that have not completed their accounting for the effects of the Tax Act but can determine a reasonable estimate of those effects should include a provisional amount based on their reasonable estimate in their financial statements. The Company, as explained below, has made reasonable estimates in order to account for the effects of the Tax Act.
Although the $7,599 net benefit represents what the Company believes is a reasonable estimate of the impact of the income tax effects of the Tax Act as of December 31, 2017, it should be considered provisional. In light of the complexity of the Tax Act, the Company anticipates additional interpretive guidance from the U.S. Treasury and adjustments during the one year measurement period are probable. Once the Company finalizes certain tax positions when it files its 2017 U.S. tax return it will be able to conclude whether any further adjustments are required to its deferred tax balances in the U.S., as well as to the total liability associated with the one-time mandatory tax.
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
($ in thousands, except share and per share data)
Note M - Income Taxes (continued)
A reconciliation between taxes computed at the Federal statutory rate and the effective tax rate is as follows:
|
| | | | | | | | |
| | December 31, |
| | 2017 | | 2016 | | 2015 |
| Income taxes at federal statutory rate | 35.0 | % | | 35.0 | % | | 35.0 | % |
| Effects of foreign operations | (4.5 | ) | | (5.3 | ) | | (3.6 | ) |
| Stock-based compensation | (2.2 | ) | | (3.0 | ) | | — |
|
| State and local income taxes - net of federal income tax benefit | 2.0 |
| | 2.0 |
| | 1.7 |
|
| Nondeductible items | 0.5 |
| | 0.2 |
| | 0.1 |
|
| Impact of tax reform | (4.4 | ) | | — |
| | — |
|
| Receivable Adjustment | 2.7 |
| | — |
| | — |
|
| Other | 1.8 |
| | 0.2 |
| | 0.9 |
|
| Effective rate | 30.9 | % | | 29.1 | % | | 34.1 | % |
The components of deferred tax assets and liabilities are as follows:
|
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| Deferred taxes assets | | | |
| Receivable allowances | 7,315 |
| | 8,800 |
|
| Inventory | 901 |
| | 2,202 |
|
| Unrealized loss | 321 |
| | 177 |
|
| Accrued expenses | 1,796 |
| | 751 |
|
| Deferred compensation | 11,071 |
| | 17,569 |
|
| Deferred rent | 3,737 |
| | 5,327 |
|
| Net carryforwards | 300 |
| | 1,172 |
|
| Other | 3,842 |
| | 3,515 |
|
| Gross deferred tax assets | 29,283 |
| | 39,513 |
|
| | | | |
| Deferred tax liabilities | | | |
| Depreciation and amortization | (16,210 | ) | | (19,264 | ) |
| Unremitted earnings of foreign subsidiaries | (2,422 | ) | | (31,262 | ) |
| Amortization of goodwill | (7,883 | ) | | (6,640 | ) |
| Gross deferred tax liabilities | (26,515 | ) | | (57,166 | ) |
| |
|
| |
|
|
| Net deferred tax assets (liabilities) | $ | 2,768 |
| | $ | (17,653 | ) |
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
($ in thousands, except share and per share data)
Note M - Income Taxes (continued)
The Company applies the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse.
In accordance with accounting guidance, the Company has opted to classify interest and penalties that would accrue according to the provisions of relevant tax law as income tax expense on the Consolidated Statements of Income. The Company determines the amount of interest expense to be recognized by applying the applicable statutory rate of interest to the difference between the tax position recognized and the amount previously taken or expected to be taken on a tax return. The Company's tax years 2014 through 2017 remain open to examination by most taxing authorities. During 2017, the U.S. Internal Revenue Service ("IRS") completed its audit of the Company's 2014 U.S. income tax return. The Company does not have any material unrecognized tax benefits recorded as of December 31, 2017 and 2016.
The Company's consolidated financial statements provide for any related tax liability on amounts that may be repatriated from foreign operations, aside from undistributed earnings of certain of the Company's foreign subsidiaries that are intended to be indefinitely reinvested in operations outside the U.S. The deferred tax liability of $2,422 at December 31, 2017 reflects the withholding and state and local tax on amounts that may be repatriated from foreign operations. The Company continues to analyze the impact of the Tax Act on its indefinite reinvestment assertion, and as of December 31, 2017 has recorded a provisional estimate for the potential taxes related to the one-time mandatory tax.
Note N – Commitments, Contingencies and Other
[1]Legal Proceedings:
In the ordinary course of business, the Company has various pending cases involving contractual disputes, employee-related matters, distribution matters, product liability claims, trademark infringement and other matters. In the opinion of management, after consulting with legal counsel, the liabilities, if any, resulting from these legal proceedings should not have a material impact on the Company's financial condition, results of operations or cash flows. It is the policy of management to disclose the amount or range of reasonably possible losses in excess of recorded amounts.
[2]Employment agreements:
Edward R. Rosenfeld. On December 31, 2015, the Company entered into a new employment agreement with Edward R. Rosenfeld, the Company's Chief Executive Officer and the Chairman of the Board of Directors, to replace an existing employment agreement that expired on December 31, 2015. The agreement, which expires on December 31, 2018, provides for an annual salary of $900 in 2018. In addition, pursuant to his new employment agreement, on December 31, 2015, Mr. Rosenfeld received a grant of 75,000 shares of the Company's common stock subject to certain restrictions and, on February 5, 2016, a further grant of 75,000 shares of the Company's common stock subject to certain restrictions. The restricted shares received by Mr. Rosenfeld on December 31, 2015 and February 5, 2016 were issued under the Company's 2006 Stock Incentive Plan, as amended, and vest in equal annual installments over a five-year period commencing on December 1, 2016 and March 5, 2017, respectively. Additional compensation and bonuses, if any, are at the sole discretion of the Board of Directors.
Steven Madden. On January 3, 2012, the Company and its Creative and Design Chief, Steven Madden, entered into an amendment, dated as of December 31, 2011, to Mr. Madden’s then existing employment agreement with the Company. The amended agreement, which extends the term of Mr. Madden's employment through December 31, 2023, provides,
among other things, for a base salary of approximately $7,026 per annum for the period between January 1, 2016 through the expiration of the term of employment. Also under the amended agreement, Mr. Madden received the right, exercisable on certain specified dates in fiscal year 2012 only, to elect to receive a grant of restricted stock for a number of shares of the Company’s common stock valued at $40,000 in consideration for certain specified reductions in his annual base salary
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
($ in thousands, except share and per share data)
Note N – Commitments, Contingencies and Other (continued)
in years subsequent to 2012. Mr. Madden exercised this right and, on July 3, 2012, he was granted 1,893,342 restricted shares of the Company's common stock at the then market price of $21.13, which shares vest in the same manner as the February 8, 2012 restricted stock grant received by Mr. Madden pursuant to the amended agreement. (See Note N to the Consolidated Financial Statements.) Further, in addition to the opportunity for cash bonuses at the sole discretion of the Board of Directors, Mr. Madden’s amended agreement entitles him to an annual life insurance premium payment as well as an annual stock option grant. The amended agreement also provides Mr. Madden the potential for an additional one-time stock option award for 750,000 shares of the Company’s common stock (the “EPS Option”) in the event that the Company achieves earnings per share on a fully-diluted basis equal to $2.00 as to any fiscal year ending December 31, 2015 or thereafter, which performance criteria was achieved for the fiscal year ended December 31, 2016 and, as such. on March 1, 2017, Mr. Madden was granted the EPS Option at an exercise price of $37.35 per share. The EPS Option vests in equal annual installments over a five-year period commencing on the first anniversary of the grant date.
Arvind Dharia. On February 2, 2015, the Company and its Chief Financial Officer, Arvind Dharia, entered into an amendment of Mr. Dharia's existing employment agreement. The amendment, among other things, increased his annual base salary to $582 effective January 1, 2015 through the remainder of the term of the employment agreement, which ends on December 31, 2018. Pursuant to the amendment, on February 2, 2015, Mr. Dharia received a restricted stock award of 15,000 restricted shares of the Company's common stock, which vests in substantially equal annual installments over a five-year period commencing on February 2, 2016 through February 2, 2020. The agreement, as amended, provides for an annual bonus to Mr. Dharia at the discretion of the Board of Directors.
Amelia Newton Varela. On December 30, 2016, the Company entered into a new employment agreement with Amelia Newton Varela, the Company’s President and a member of the Board of Directors of the Company, to replace an existing employment agreement that expired on December 31, 2016. The agreement, which remains in effect through December 31, 2019, provides for an annual salary of $650 in 2018 and $670 in 2019. In addition, pursuant to her new employment agreement, on January 3, 2017, Ms. Varela was granted an option to purchase 100,000 shares of the Company's common stock at an exercise price of $35.75. The option, which was granted under the Company’s 2006 Stock Incentive Plan, as amended, vests in four equal annual installments on each anniversary of the date of grant, commencing on January 3, 2018. The agreement provides to Ms. Varela the opportunity for an annual performance-based bonus for the fiscal years ended December 31, 2017, 2018 and 2019.
Awadhesh Sinha. On December 30, 2016, the Company entered into a new employment agreement with Awadhesh Sinha, the Company's Chief Operating Officer, to replace an existing employment agreement that expired at the end of 2016. The new agreement, which remains in effect through December 31, 2019, provides for an annual salary of $702, and $723 for the years ended December 31, 2018, and 2019, respectively, and provides to Mr. Sinha the opportunity for annual cash and share based incentive bonuses. In addition, pursuant to his new employment agreement, on January 3, 2017, Mr. Sinha received a grant of 28,169 shares of the Company's common stock subject to certain restrictions. The restricted
shares received by Mr. Sinha were issued under the Company's 2006 Stock Incentive Plan, as amended, and vest in equal annual installments over a three-year period on each of December 15, 2017, December 15, 2018, and December 15, 2019.
Karla Frieders. On April 11, 2017, the Company entered into a new employment agreement with Karla Frieders, the Company’s Chief Merchandising Officer, to replace an existing employment agreement which expired on February 28,
2017. The agreement, which remains in effect through April 30, 2020, provides to Ms. Frieders an annual salary of $550 for the period commencing on April 11, 2017 and ending on April 30, 2018; $570 for the period commencing on May 1, 2018 and ending on April 30, 2019; and $590 for the period commencing on May 1, 2019 and ending on April 30, 2020; and an annual performance-based bonus for the fiscal years ending December 31, 2017, 2018 and 2019 in an amount to be determined at the discretion of the Company. In addition, pursuant to her new employment agreement, on April 11, 2017, Ms. Frieders received a grant of 20,000 shares of the Company's common stock subject to certain restrictions. The
restricted shares received by Ms. Frieders were issued under the Company's 2006 Stock Incentive Plan, as amended, and vest in equal annual installments over a five-year period commencing on April 1, 2018 and ending on April 1, 2022.
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
($ in thousands, except share and per share data)
Note N – Commitments, Contingencies and Other (continued)
Michael Paradise. On April 5, 2016, the Company entered into a new employment agreement with Michael Paradise, the Company's Executive Vice President - Legal Counsel. The agreement, which remains in effect through December 31, 2018, provides to Mr. Paradise an annual salary of $400 subject to periodic increases as determined by the Board of Directors, and an annual performance-based bonus for the fiscal years ending December 31, 2016, December 31, 2017 and December 31, 2018 in an amount to be determined at the discretion of the Company. The agreement also provides Mr. Paradise with a signing bonus in the amount of $250. In addition, pursuant to his employment agreement, on June
1, 2016, Mr. Paradise received a grant of 7,217 shares of the Company's common stock subject to certain restrictions. The restricted shares received by Mr. Paradise were issued under the Company's 2006 Stock Incentive Plan, as amended, and vest in equal annual installments over a four-year period commencing on June 1, 2017 and ending on June 1, 2020.
[3]Letters of credit:
At December 31, 2017, the Company had no open letters of credit for the purchase of imported merchandise.
[4]License agreements:
On January 30, 2017, the Company acquired all of the outstanding capital stock of Schwartz & Benjamin, which holds licenses to manufacture, market and sell footwear with the Kate Spade® and Avec Les Filles® trademarks. The license agreements require Schwartz & Benjamin to pay the licensor a royalty equal to a percentage of net sales and a minimum royalty in the event that specified net sales targets are not achieved. The license agreements extend through December 31, 2020.
In August 2017, the Company entered into a license agreement with Donna Karan Studio LLC for the right to manufacture, market and sell women's belts with the DKNY® and Donna Karan® brands. The agreement, unless extended, expires on December 31, 2020. The agreement requires that the Company pay the licensor a royalty equal to a percentage of net sales and a minimum royalty in the event that specified net sales targets are not achieved.
On March 1, 2014, the Company entered into a license agreement with ABG Juicy Couture, LLC, under which the Company has the right to use the Juicy Couture® trademark in connection with the sale and marketing of women's footwear. The agreement requires the Company to pay the licensor a royalty equal to a percentage of net sales and a minimum royalty in the event that specified net sales targets are not achieved. The agreement terminated on December 31, 2017.
On February 9, 2011, the Company entered into a license agreement with Basic Properties America Inc. and BasicNet S.p.A, under which the Company has the right to use the Superga® trademark in connection with the sale and marketing of women's footwear. The agreement requires the Company to pay the licensor a royalty equal to a percentage of net sales and a minimum royalty in the event that specified net sales targets are not achieved. The agreement was amended on April 11, 2013 to extend the term of the agreement through December 31, 2022.
Future minimum royalty payments are $4,078 for 2018, $10,060 for 2019 through 2020 and $2,000 for 2021 through 2022. Royalty expenses are included in the “cost of goods sold” section of the Company's Consolidated Statements of Income.
[5]Concentrations:
The Company maintains cash and cash equivalents with various major financial institutions which at times are in excess of the amount insured. In addition, the Company's marketable securities are principally held at three brokerage companies.
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
($ in thousands, except share and per share data)
Note N – Commitments, Contingencies and Other (continued)
During the year ended December 31, 2017, the Company did not purchase more than 10% of its merchandise from any single supplier. Total product purchases from China for the year ended December 31, 2017 were approximately 93%.
During the year ended December 31, 2016, the Company did not purchase more than 10% of its merchandise from any single supplier. Total product purchases from China for the year ended December 31, 2016 were approximately 87%.
During the year ended December 31, 2015, the Company did not purchase more than 10% of its merchandise from any single supplier. Total product purchases from China for the year ended December 31, 2015 were approximately 90%.
For the year ended December 31, 2017, Target Corporation represented 13.4% of total accounts receivable and Wal-Mart Stores, Inc. represented 14.6% of total accounts receivable. The Company did not have customers who accounted for more than 10% of total net sales or any other customers who accounted for more than 10% of total accounts receivable.
For the year ended December 31, 2016, Target Corporation represented 12.0% of net sales and 16.9% of total accounts receivable. The Company did not have any other customers who accounted for more than 10% of total net sales or 10% of total accounts receivable.
For the year ended December 31, 2015, Target Corporation represented 12.2% of net sales and 16.7% of total accounts receivable. The Company did not have any customers who accounted for more than 10% of total net sales or 10% of total accounts receivable.
Purchases are made primarily in United States dollars.
[6]Valuation and qualifying accounts:
The following is a summary of the allowance for chargebacks and doubtful accounts related to accounts receivable and the allowance for chargebacks related to the amount due from factor:
|
| | | | | | | | | | | | | | | |
| | Balance at Beginning of Year | | Additions | | Deductions | | Balance at End of Year |
| Year ended December 31, 2017 | | | | | | | |
| Allowance for doubtful accounts | $ | 144 |
| | $ | 15,070 |
| | $ | 14,598 |
| | $ | 616 |
|
| Allowance for chargebacks | 19,138 |
| | 83,076 |
| | 76,766 |
| | 25,448 |
|
| Returns | 2,549 |
| | 8,750 |
| | 9,177 |
| | 2,122 |
|
| Year ended December 31, 2016 | | | | | | | |
| Allowance for doubtful accounts | 200 |
| | 5 |
| | 61 |
| | 144 |
|
| Allowance for chargebacks | 19,040 |
| | 67,649 |
| | 67,551 |
| | 19,138 |
|
| Returns* | 4,822 |
| | 5,169 |
| | 7,442 |
| | 2,549 |
|
| Year ended December 31, 2015 | | | | | | | |
| Allowance for doubtful accounts | 203 |
| | 162 |
| | 165 |
| | 200 |
|
| Allowance for chargebacks | 18,199 |
| | 76,085 |
| | 75,244 |
| | 19,040 |
|
| Returns* | $ | 5,160 |
| | $ | 5,868 |
| | $ | 6,206 |
| | $ | 4,822 |
|
| | | | | | | | |
| * The return reserve does not take into consideration the Company's ability to resell returned products. |
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
($ in thousands, except share and per share data)
Note O – Operating Segment Information
The Company operates the following business segments: Wholesale Footwear, Wholesale Accessories, Retail, First Cost and Licensing. The Wholesale Footwear segment, through sales to department stores, mid-tier retailers, mass market merchants, online retailers and specialty stores, derives revenue, both domestically and worldwide (via our International business), from sales of branded and private label women’s, men’s, girls’ and children’s footwear. The Wholesale Accessories segment, which includes branded and private label handbags, belts and small leather goods as well as cold weather and selected other fashion accessories, derives revenue, both domestically and worldwide (via our International business), from sales to department stores, mid-tier retailers, mass market merchants, online retailers and specialty stores. Our Wholesale Footwear and Wholesale Accessories segments, through our International business, derive revenue from Albania, Austria, Belgium, Bulgaria, Canada, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Hungary, Ireland, Kosovo, Latvia, Lithuania, Luxembourg, Mexico, the Netherlands, Norway, Poland, Romania, Russia, Slovakia, Slovenia, Sweden, Switzerland, and Tunisia and, under special distribution arrangements in various other territories within Asia, Europe (excluding the aforementioned nations), the Middle East, India, South and Central America and New Zealand. The Retail segment, through the operation of Company-owned retail stores in the United States, Canada and Mexico, our joint ventures in South Africa, China and Taiwan and the Company’s websites, derives revenue from sales of branded women’s, men’s and children’s footwear, accessories and licensed products to consumers. The First Cost segment represents activities of a subsidiary that earns commissions and design fees for serving as a buying agent of footwear products to mass-market merchandisers, mid-tier department stores and other retailers with respect to their purchase of footwear. In the Licensing segment, the Company generates revenue by licensing its Steve Madden®, Steven by Steve Madden® and Madden Girl® trademarks for use in connection with the manufacture, marketing and sale of outerwear, hosiery, jewelry, watches, sunglasses, hair accessories, umbrellas, bedding, luggage, and men’s leather accessories.We license the Stevies® trademark for use in connection with the manufacture, marketing and sale of outerwear exclusively to Target. In addition, this segment licenses the Betsey Johnson® trademark for use in connection with the manufacture, marketing and sale of women's and children’s apparel, hosiery, swimwear, fragrance and beauty, sleepwear, activewear, jewelry, watches, bedding, luggage, stationary, umbrellas, and household goods. The Licensing segment also licenses the Dolce Vita® trademark for use in connection with the manufacture, marketing and sale of women's and children's apparel.
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
($ in thousands, except share and per share data)
Note O – Operating Segment Information (continued)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended | | Wholesale Footwear | | Wholesale Accessories | | Total Wholesale | | Retail | | First Cost | | Licensing | | Consolidated |
| December 31, 2017: | | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Net sales | | $ | 1,017,557 |
| | $ | 256,295 |
| | $ | 1,273,852 |
| | $ | 272,246 |
| | $ | — |
| | $ | — |
| | $ | 1,546,098 |
|
| Gross profit | | 332,367 |
| | 80,729 |
| | 413,096 |
| | 164,645 |
| | — |
| | — |
| | 577,741 |
|
| Commissions and licensing fees – net | | — |
| | — |
| | — |
| | — |
| | 5,159 |
| | 9,100 |
| | 14,259 |
|
| Income from operations | | 133,014 |
| | 23,637 |
| | 156,651 |
| | (1,126 | ) | | 5,159 |
| | 9,100 |
| | 169,784 |
|
| Depreciation and amortization | | | | | | 11,287 |
| | 9,645 |
| | 457 |
| | — |
| | 21,389 |
|
| Segment assets | | $ | 784,334 |
| | $ | 138,720 |
| | 923,054 |
| | 122,111 |
| | 11,996 |
| | — |
| | 1,057,161 |
|
| Capital expenditures | | | | | | $ | 5,590 |
| | $ | 9,185 |
| | $ | — |
| | $ | — |
| | $ | 14,775 |
|
| December 31, 2016: | | | | |
| |
|
| | |
| | |
| | |
| |
|
|
| Net sales | | $ | 881,864 |
| | $ | 254,931 |
| | $ | 1,136,795 |
| | $ | 262,756 |
| | $ | — |
| | $ | — |
| | $ | 1,399,551 |
|
| Gross profit | | 279,835 |
| | 84,422 |
| | 364,257 |
| | 157,726 |
| | — |
| | — |
| | 521,983 |
|
| Commissions and licensing fees – net | | — |
| | — |
| | — |
| | — |
| | 3,728 |
| | 8,060 |
| | 11,788 |
|
| Income from operations | | 110,039 |
| | 31,562 |
| | 141,601 |
| | 15,787 |
| | 3,728 |
| | 8,060 |
| | 169,176 |
|
| Depreciation and amortization | | | | | | 11,734 |
| | 9,087 |
| | 281 |
| | — |
| | 21,102 |
|
| Segment assets | | $ | 648,738 |
| | $ | 186,075 |
| | 834,813 |
| | 118,168 |
| | 7,894 |
| | — |
| | 960,875 |
|
| Capital expenditures | | | | | | $ | 5,990 |
| | $ | 9,907 |
| | $ | — |
| | $ | — |
| | $ | 15,897 |
|
| December 31, 2015 | | | | | | | | | | | | | | |
| Net sales | | $ | 898,363 |
| | $ | 266,564 |
| | $ | 1,164,927 |
| | $ | 240,312 |
| | $ | — |
| | $ | — |
| | $ | 1,405,239 |
|
| Gross profit | | 265,822 |
| | 88,361 |
| | 354,183 |
| | 146,309 |
| | — |
| | — |
| | 500,492 |
|
| Commissions and licensing fees – net | | — |
| | — |
| | — |
| | — |
| | 6,713 |
| | 9,852 |
| | 16,565 |
|
| Income from operations | | 104,836 |
| | 32,612 |
| | 137,448 |
| | 17,635 |
| | 6,713 |
| | 9,852 |
| | 171,648 |
|
| Depreciation and amortization | | | | | | 12,624 |
| | 7,897 |
| | 236 |
| | — |
| | 20,757 |
|
| Segment assets | | $ | 604,015 |
| | $ | 187,895 |
| | 791,910 |
| | 106,823 |
| | 15,652 |
| | — |
| | 914,385 |
|
| Capital expenditures | | | | | | $ | 7,237 |
| | $ | 12,222 |
| | $ | — |
| | $ | — |
| | $ | 19,459 |
|
Revenues by geographic area arewere as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (in thousands) | 2022 | | 2021 | | 2020 |
Domestic(1) | $ | 1,772,711 | | | $ | 1,641,090 | | | $ | 1,054,348 | |
| International | 349,298 | | | 225,052 | | | 147,466 | |
| Total | $ | 2,122,009 | | | $ | 1,866,142 | | | $ | 1,201,814 | |
|
| | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2017 | | 2016 | | 2015 |
| Domestic (a) | | $ | 1,383,841 |
| | $ | 1,258,973 |
| | $ | 1,255,709 |
|
| International | | 162,257 |
| | 140,578 |
| | 149,530 |
|
| Total | | $ | 1,546,098 |
| | $ | 1,399,551 |
| | $ | 1,405,239 |
|
| (a) Includes revenues of $329,107, $312,491 and $331,481 for the years ended 2017, 2016 and 2015 related to sales to U.S. customers where the title is transferred outside the U.S. and the sale is recorded by our International subsidiary. |
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016(1) Includes revenues of $305,437, $329,934, and 2015
($ in thousands, except share and per share data)
Note P - Quarterly Results of Operations (unaudited)
The following is a summary of the quarterly results of operations$249,235, respectively, for the years ended December 31, 20172022, 2021, and 2016:
|
| | | | | | | | | | | | | | | |
| | March 31, | | June 30, | | September 30, | | December 31, |
| 2017: | | | | | | | |
| Net sales | $ | 366,387 |
| | $ | 374,148 |
| | $ | 441,193 |
| | $ | 364,370 |
|
| Cost of sales | 233,669 |
| | 234,751 |
| | 275,303 |
| | 224,634 |
|
| Gross profit | 132,718 |
| | 139,397 |
| | 165,890 |
| | 139,736 |
|
| Commissions, royalty and licensing fee income - net | 3,927 |
| | 2,166 |
| | 4,745 |
| | 3,421 |
|
| Net income attributable to Steven Madden, Ltd. | $ | 20,158 |
| | $ | 28,964 |
| | $ | 44,229 |
| | $ | 24,597 |
|
| Net income per share: | | | | | | | |
| Basic | $ | 0.36 |
| | $ | 0.53 |
| | $ | 0.81 |
| | $ | 0.45 |
|
| Diluted | $ | 0.35 |
| | $ | 0.50 |
| | $ | 0.77 |
| | $ | 0.43 |
|
| 2016: | | | | | | | |
| Net sales | $ | 329,357 |
| | $ | 325,402 |
| | $ | 408,384 |
| | $ | 336,408 |
|
| Cost of sales | 213,155 |
| | 204,357 |
| | 253,876 |
| | 206,180 |
|
| Gross profit | 116,202 |
| | 121,045 |
| | 154,508 |
| | 130,228 |
|
| Commissions, royalty and licensing fee income - net | 2,171 |
| | 2,826 |
| | 5,358 |
| | 1,529 |
|
| Net income attributable to Steven Madden, Ltd. | $ | 23,659 |
| | $ | 24,737 |
| | $ | 43,767 |
| | $ | 28,748 |
|
| Net income per share: | | | | | | | |
| Basic | $ | 0.41 |
| | $ | 0.43 |
| | $ | 0.77 |
| | $ | 0.51 |
|
| Diluted | $ | 0.39 |
| | $ | 0.41 |
| | $ | 0.74 |
| | $ | 0.49 |
|
Note Q - Recent Accounting Pronouncements
Recently Adopted
In January 2017,2020, respectively, related to sales to U.S. customers where the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update 2017-04 ("ASU 2017-04"), "Simplifyingtitle is transferred outside the Test for Goodwill Impairment." ASU 2017-04 changesU.S. and the methodology of applying the quantitative approach during interim or annual impairment testing. The guidancesale is effective in fiscal years beginning after December 15, 2020 with early adoption permitted. The Company adopted the provisions of ASU 2017-04 in the second quarter of 2017; the adoption did not have a material impact onrecorded by the Company's financial statements.international entities.
In July 2015, the FASB issued Accounting Standards Update 2015-11 ("ASU 2015-11"), "Inventory (Topic 330): Simplifying the Measurement of Inventory", which changes the measurement principle for inventory from the lower of cost or market to the lower of cost
Note T – Valuation and net realizable value. ASU 2015-11 defines net realizable value as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The Company adopted the provisions of ASU 2015-11 in the first quarter of 2017; the adoption did not have a material impact on the Company's financial statements.Qualifying Accounts
| | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | Balance at Beginning of Year | | Additions | | Deductions | | Balance at
End of Year |
| Year ended December 31, 2022 | | | | | | | |
| Markdown, chargeback, co-op advertising allowances and return reserves | $ | 28,955 | | | $ | 69,543 | | | $ | (72,811) | | | $ | 25,687 | |
| Allowance for doubtful accounts | 12,273 | | | 4,946 | | | (9,498) | | | 7,721 | |
| Deferred tax asset valuation allowance | 3,753 | | | 250 | | | (55) | | | 3,948 | |
| Total | $ | 44,981 | | | $ | 74,739 | | | $ | (82,364) | | | $ | 37,356 | |
| Year ended December 31, 2021 | | | | | | | |
| Markdown, chargeback, co-op advertising allowances and return reserves | $ | 18,832 | | | $ | 58,813 | | | $ | (48,690) | | | $ | 28,955 | |
| Allowance for doubtful accounts | 8,943 | | | 7,172 | | | (3,842) | | | 12,273 | |
| Deferred tax asset valuation allowance | 4,968 | | | 229 | | | (1,444) | | | 3,753 | |
| Total | $ | 32,743 | | | $ | 66,214 | | | $ | (53,976) | | | $ | 44,981 | |
| Year ended December 31, 2020 | | | | | | | |
| Markdown, chargeback, co-op advertising allowances and return reserves | $ | 34,207 | | | $ | 30,508 | | | $ | (45,883) | | | $ | 18,832 | |
| Allowance for doubtful accounts | 11,066 | | | 1,405 | | | (3,528) | | | 8,943 | |
| Deferred tax asset valuation allowance | 2,230 | | | 2,738 | | | — | | | 4,968 | |
| Total | $ | 47,503 | | | $ | 34,651 | | | $ | (49,411) | | | $ | 32,743 | |
In November 2015, the FASB issued Accounting Standards Update 2015-17 ("ASU 2015-17"), "Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes." ASU 2015-17 simplifies current guidance and requires companies to classify all deferred tax assets and liabilities as noncurrent on the balance sheet. The Company adopted the provisions of ASU 2015-17 in the first quarter of 2017 under the retrospective approach and, as such, the Company reclassified $13,985 of deferred taxes from current to non-current on our balance sheet as of December 31, 2016.
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
($ in thousands, except share and per share data)
Note Q - Recent Accounting Pronouncements (continued)
Not Yet Adopted
In February 2018, the FASB issued Accounting Standards Update No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”), which allows for stranded tax effects in accumulated other comprehensive income resulting from the U.S. Tax Cuts and Jobs Act to be reclassified to retained earnings. ASU 2018-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the impact of adopting the new standard and does not expect the new standard to have a material impact on the Company’s financial position or results of operations.
In August 2017, the FASB issued Accounting Standards Update 2017-12 ("ASU 2017-12"), "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities." ASU 2017-12 changes the recognition and presentation requirements of hedge accounting. The guidance provides new alternatives for applying hedge accounting to additional hedging strategies and measuring the hedged item in fair value hedges of interest rate risk, as well as applies new alternatives for reducing the cost and complexity of applying hedge accounting by easing the requirements for effectiveness testing, hedge documentation and application of the critical terms match method, and reducing the risk of material error correction if a company applies the shortcut method inappropriately. The guidance is effective for annual and interim periods in fiscal years beginning after December 15, 2018 and early adoption is permitted any time after the issuance of the ASU, including in an interim period. The Company is currently evaluating the effect that the new guidance will have on its financial statements and related disclosures.
In August 2016, the FASB issued Accounting Standards Update 2016-15 ("ASU 2016-15"), "Classification of Certain Cash Receipts and Cash Payments." ASU 2016-15 clarifies how certain cash receipts and payments should be presented in the statement of cash flows. The guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years with early adoption permitted. We will adopt the guidance when it becomes effective in the first quarter of 2018; the guidance is not expected to have a material impact on our financial statements.
In June 2016, the FASB issued Accounting Standards Update 2016-13 ("ASU 2016-13"), "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." ASU 2016-13 replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The new guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the
effect that the new guidance will have on its financial statements and related disclosures.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02 ("ASU 2016-02"), "Leases," which is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018 with early adoption permitted. Under ASU 2016-02, lessees will be required to recognize for all leases with terms longer than twelve months, at the commencement date of the lease, a lease liability, which is a lessee’s obligation to make lease payments arising from a lease measured on a discounted basis, and a right-to-use asset, which is an asset that represents the lessee’s right to use or control the use of a specified asset for the lease term. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition. The Company is currently evaluating the effect that the new guidance will have on its financial statements and related disclosures and, although the analysis is not complete, it is expected to have a material impact on the consolidated financial statements.
In January 2016, the FASB issued Accounting Standards Update 2016-01 ("ASU 2016-01"), "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities." ASU 2016-01 generally requires companies to measure investments in equity securities, except those accounted for under the equity method, at fair value and recognize any changes in fair value in net income. The new guidance must be applied using a modified-retrospective approach and is effective for periods beginning after December 15, 2017 and early adoption is not permitted. We will adopt the guidance when it becomes effective in the first quarter of 2018; the guidance is not expected to have a material impact on our financial statements.
In May 2014, the FASB issued new accounting guidance, Accounting Standards Update No. 2014-09 ("ASU 2014-09"), "Revenue from Contracts with Customers," on revenue recognition. The new standard provides for a single five-step model to be applied to
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
($ in thousands, except share and per share data)
Note Q - Recent Accounting Pronouncements (continued)
all revenue contracts with customers as well as requires additional financial statement disclosures that will enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows relating to customer contracts. Companies have an option to use either a retrospective approach or cumulative effect adjustment approach to implement the standard. ASU No. 2014-09 is effective for annual reporting periods beginning after December 15, 2017, and the Company plans to adopt the provisions of the new standard in the first quarter of 2018 using the cumulative effect adjustment approach. The Company is utilizing a comprehensive approach to assess the impact of the guidance on each of our operating segments' revenue streams, including assessment of our performance obligations, principal versus agent considerations and variable consideration. Additionally, the Company is evaluating the impact of the new guidance on disclosures, as well as the impact on controls to support the recognition. Based on the foregoing, at the current time the Company does not believe the adoption to have a material impact on its consolidated financial statements as the Company’s current revenue recognition policies are in-line with the principles of the new guidance.
Exhibit Index
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| Equity Purchase Agreement, dated January 30, 2017, among the Company, Schwartz & Benjamin, Inc., B.D.S., Inc., Quinby Ridge Enterprises LLC, DANIELBARBARA Enterprises LLC, the Sellers party thereto, and Daniel Schwartz, as agent for the Sellers (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on January 31, 2017). |
| First Amendment to Equity Purchase Agreement, dated November 21, 2017, to Equity Purchase Agreement, dated January 30, 2017, among the Company, Schwartz & Benjamin, Inc., B.D.S., Inc., Quinby Ridge Enterprises LLC, DANIELBARBARA Enterprises LLC, the Sellers party thereto, and Daniel Schwartz, as agent for the Sellers † |
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| Letter Agreement dated July 10, 2009 among Rosenthal & Rosenthal, Inc., the Company, Daniel Friedman & Associates, Inc., Diva Acquisition Corp., Steven Madden Retail, Inc., Stevies, Inc., and SML Acquisition Corp. (incorporated by reference to Exhibit 10.7 to the Company's Current Report on Form 8-K filed with the SEC on July 16, 2009) |
| Guarantee dated July 10, 2009 of the Company, Daniel Friedman & Associates, Inc., Diva Acquisition Corp., Steven Madden Retail, Inc., Stevies, Inc., and SML Acquisition Corp. in favor of Rosenthal & Rosenthal, Inc. (incorporated by reference to Exhibit 10.8 to the Company's Current Report on Form 8-K filed with the SEC on July 16, 2009) |
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101 | The following materials from Steven Madden, Ltd.'s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Stockholders' Equity, (v) the Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text.* |
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# | Indicates management contract or compensatory plan or arrangement required to be identified pursuant to Item 15(b) of this Annual Report on Form 10-K. |
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* | This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any filing, except to the extent the Company specifically incorporates it by reference. |
