If the Shoe Fits...

11/10/2006 12:00 am EST


Jim Collins

Chairman and CEO, Insight Capital Research & Management, Inc.

Always on the lookout for companies with good growth potential, Jim Collins, 'steps out' with his analysis of footwear maven Steve Madden. In his latest issue, he points out the company's new foray into "design your own".

"Steve Madden (SHOO NASDAQ GS) designs and sells footwear for women, men, and children. The company offers wholesale, retail, and private label footwear. Products are

distributed in the United States and Canada, as well as Europe, Central and South America, Australia, and Indonesia. As of June 30, 2006, the company operated 95 stores and planned to open 4-5 more in 2006.

"For the year 2006, wholesale represented 64% of sales and retail comprised 36% of sales. The wholesale division sells to department and specialty stores for the following Steve Madden seven brands: Women's, Steve Madden Men's, l.e.i, Candie's, Steven by Steve Madden, Stevie's, and SM New York. The company is currently launching a higher-end Men's brand at price points of $160-$200 (and $300 boots).

"The retail division had 95 stores open at mid-year 2006 and plans to open 4 to 5 more stores by the end of the year. Sales per square foot for the stores was $771 for 2005.

"On October 30, 2006, Steve Madden launched 'Design Your Own' Collection, which enables consumers to chose between signature high or very high heels or flats, as well as patterns, material, finishing, and color choices in creating their own shoe. There are a total of 4,221 possible combinations available for consumers. By creating their own shoe, consumers can customize the shoe to their own liking.

"For the quarter ended June 30, 2006, Steve Madden reported net income of $0.58 per share, compared to $0.26 reported in the prior year. Total revenue increased 28% to $130 million compared to $101 million reported last year. Wholesale revenues were up 40.8%, driven by the existing product lines and the acquisition of Daniel M. Friedman & Associates, as well as the recently launched SM New York segment. Excluding the acquisition, revenues were up 15.5% for the segment.

"The stock recently was at its all-time high. The company has a relative strength of 98 and receives a rating of B for accumulation/distribution.

"The company is exposed to fashion risk, which can be difficult to predict. In the retail division, due to a planned reset of the men's product line, same store sales have been declining. Given the breadth of brands and new brand line extensions, the company is exposed to execution risk."

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