Steven Madden(SHOO) - 2020 Q4 - Annual Report

PART I Item 1. Business The company designs, sources, and markets fashion-forward footwear, accessories, and apparel through a multi-channel global distribution network - The company's business is organized into five distinct segments: Wholesale Footwear, Wholesale Accessories/Apparel, Retail, First Cost, and Licensing[22] - Products are sourced from independent manufacturers, primarily in China (78% of 2020 purchases), with other locations including Cambodia, Mexico, Brazil, India, and Vietnam[53][102] - Walmart Inc. was a significant customer, representing approximately 13.9% of total revenue for the year ended December 31, 2020[57] - As of December 31, 2020, the company operated 218 retail stores, including 143 full-price stores, 66 outlet stores, and seven e-commerce websites[47] - The Board of Directors reinstated a quarterly cash dividend of $0.15 per share in February 2021, following a temporary suspension due to the COVID-19 pandemic[21][135] Product Distribution Segments The company's operations are divided into five segments, each featuring a portfolio of owned and licensed brands Key Brands by Segment | Segment | Key Brands | | :--- | :--- | | Wholesale Footwear | Steve Madden®, Madden Girl®, Dolce Vita®, Blondo®, GREATS®, Superga® (license), Anne Klein® (license) | | Wholesale Accessories/Apparel | Steve Madden®, Betsey Johnson®, Big Buddha®, BB Dakota®, Anne Klein® (license) | | Retail | Steve Madden, Steven, Superga stores and e-commerce sites for major brands | | First Cost | Serves as a buying agent for private label footwear | | Licensing | Steve Madden®, Betsey Johnson®, Dolce Vita® trademarks for various products like apparel, jewelry, luggage | Product Sourcing and Distribution The company sources products from independent manufacturers, primarily in Asia, and distributes them through third-party centers in the U.S - The company relies on independent manufacturers and does not have long-term manufacturing contracts, believing sufficient alternative sources exist[53] - U.S. distribution is handled mainly from six third-party distribution centers located in California, Texas, and New Jersey[56] Human Capital Resources The company employed approximately 2,800 people globally as of early 2021 and implemented various diversity and COVID-19 response initiatives - As of February 1, 2021, the company employed approximately 2,800 people, with 2,100 full-time and 700 part-time[76] - In 2020, the company established a Diversity and Inclusion Council, formed employee resource groups (Black Sole, SM Pride), and partnered with Historically Black Colleges and Universities to expand recruiting[80][84] - The company's COVID-19 response included temporarily closing all stores, enabling remote work for corporate positions, and implementing enhanced safety protocols[82] Item 1A. Risk Factors The company faces significant risks from the COVID-19 pandemic, changing fashion trends, supply chain dependencies, and cybersecurity threats - The COVID-19 pandemic poses a significant risk, potentially causing store closures and a material reduction in revenue for an indeterminable period[86][87] - The business is highly dependent on its ability to anticipate and respond to rapid changes in fashion trends and consumer preferences[88][89] - The company relies on independent foreign manufacturers, with 78% of total purchases in 2020 coming from China, creating exposure to geopolitical risks, trade policies, and tariffs[102][104][105] - The loss of founder and Creative and Design Chief, Steven Madden, or other members of the executive team could have a material adverse effect on the business[92] - The company faces risks from information technology disruptions and data security breaches, which could lead to loss of confidential information, operational disruption, and legal liability[113][114][115] Item 2. Properties The company leases most of its properties, including its headquarters, retail stores, and showrooms, with lease expirations staggered over the next decade - The company leases the majority of its facilities, including executive offices in Long Island City, NY (111,000 sq ft) and offices/sample production in Dongguan, China (154,900 sq ft)[127] Retail Store Lease Expiration Schedule | Year | Number of Stores | | :--- | :--- | | 2021 | 31 | | 2022 | 56 | | 2023 | 36 | | 2024 | 21 | | 2025 | 26 | | Thereafter | 45 | Item 3. Legal Proceedings The company is involved in various legal cases from the ordinary course of business which are not expected to have a material financial impact - The company has various pending legal matters but believes they will not have a material impact on its financial condition or results[129] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock (SHOO) experienced significant volatility in 2020, and both dividend and share repurchase programs were temporarily suspended - The company's common stock (SHOO) experienced significant volatility in 2020, with a high of $43.47 and a low of $16.38[133] - The quarterly dividend and share repurchase program were temporarily suspended in March 2020 due to the COVID-19 pandemic and reinstated in February 2021[135][136] 2020 Share Repurchase Summary | Metric | Value | | :--- | :--- | | Shares Repurchased | 769,526 | | Weighted Average Price | $32.97 | | Aggregate Purchase Price | ~$25.4 million | | Remaining Authorization (as of 12/31/20) | ~$111.6 million | Item 6. Selected Financial Data Financial performance declined significantly in 2020 due to the pandemic, resulting in a net loss and decreased revenue and total assets Selected Financial Data (in thousands, except per share data) | Metric | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Total revenue | $1,201,814 | $1,787,157 | $1,677,734 | | Gross profit | $464,541 | $686,017 | $640,163 | | (Loss)/income from operations | $(31,605) | $176,814 | $173,382 | | Net (loss)/income attributable to Steven Madden, Ltd. | $(18,397) | $141,311 | $129,136 | | Diluted net (loss)/income per share | $(0.23) | $1.69 | $1.50 | | Total assets (at year end) | $1,137,761 | $1,278,647 | $1,072,570 | | Stockholders' equity (at year end) | $790,369 | $841,224 | $814,682 | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The COVID-19 pandemic caused a 32.8% revenue decline to $1.2 billion and a net loss of $18.4 million in 2020 - Total revenue for 2020 decreased by 32.8% to $1.20 billion from $1.79 billion in 2019, with decreases in all segments due to the COVID-19 pandemic[152][159] - The company reported a net loss of $18.4 million, or ($0.23) per diluted share, in 2020, compared to net income of $141.3 million, or $1.69 per diluted share, in 2019[153] - In response to the pandemic, the company took measures to preserve liquidity, including temporary salary reductions, suspension of dividends and share repurchases, and scaling back on capital expenditures and inventory[150][175] - As of December 31, 2020, the company had $287.2 million in cash, cash equivalents, and short-term investments, with no debt[155][176][178] Results of Operations All segments saw revenue declines in 2020 due to COVID-19, and the company recorded significant impairment charges Segment Revenue Performance (2020 vs. 2019) | Segment | 2020 Revenue ($M) | 2019 Revenue ($M) | % Change | | :--- | :--- | :--- | :--- | | Wholesale Footwear | $713.7 | $1,112.1 | (35.8)% | | Wholesale Accessories/Apparel | $235.9 | $334.9 | (29.6)% | | Retail | $239.4 | $321.2 | (25.5)% | | First Cost | $3.9 | $7.4 | (47.6)% | | Licensing | $9.0 | $11.6 | (22.6)% | - In 2020, the company recorded significant impairment charges, including $44.3 million for intangibles and $36.9 million for lease right-of-use assets and store fixed assets[159] - Retail segment gross margin as a percentage of revenue increased from 60.8% in 2019 to 64.4% in 2020, primarily due to a sales shift to the higher-margin e-commerce business[163] Liquidity and Capital Resources The company maintained a strong liquidity position, ending 2020 with $287.2 million in cash and securing a new credit facility - On July 22, 2020, the company entered into a new $150 million, five-year, asset-based revolving credit facility, replacing its previous credit line[178] - Cash provided by operations was $44.2 million in 2020, a significant decrease from $233.8 million in 2019, primarily due to reduced income and unfavorable changes in working capital[180] - Net cash used in financing activities was $57.1 million in 2020, mainly for share repurchases ($46.6 million) and dividend payments ($12.5 million)[183] Critical Accounting Policies and the Use of Estimates Key accounting policies requiring significant management estimates include allowances for bad debts, inventory valuation, and impairment testing for goodwill - Key accounting estimates include allowances for bad debts, customer returns and chargebacks, inventory valuation, and valuation of intangible assets and goodwill[193] - Goodwill and indefinite-lived intangible assets are tested for impairment at least annually, or more frequently if impairment indicators are present[197][199] - Long-lived assets, such as those in retail stores, are reviewed for impairment when events suggest their carrying value may not be recoverable[200] Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from foreign currency exchange rate fluctuations, which it manages using forward exchange contracts - The company faces market risk from foreign currency exchange rates, as inventory purchases are primarily from foreign jurisdictions[205] - To mitigate currency risk, the company uses forward foreign exchange contracts; a 10% change in the U.S. dollar would result in a net change of approximately $4.1 million in the fair value of its derivatives[206] Item 8. Financial Statements and Supplementary Data This section incorporates the company's consolidated financial statements and reports from its independent registered public accounting firms Reports of Independent Registered Public Accounting Firms Ernst & Young LLP issued an unqualified opinion for 2020, identifying impairment of long-lived assets and markdown allowances as critical audit matters - Ernst & Young LLP provided an unqualified audit opinion for the 2020 financial statements and internal controls[244][245] - Critical audit matters for 2020 included the impairment assessment of long-lived assets at retail stores and the estimation of markdown allowances, both involving complex judgments[248][250][252] - EisnerAmper LLP provided an unqualified audit opinion for the 2019 and 2018 financial statements[263] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company changed its independent accounting firm in March 2020 and reported no disagreements with its former accountant - On March 6, 2020, the company changed its independent registered public accounting firm from EisnerAmper LLP to Ernst & Young LLP[210] - There were no disagreements with the former accountant, EisnerAmper LLP, on any accounting or auditing matters[211] Item 9A. Controls and Procedures Management concluded that the company's disclosure controls, procedures, and internal control over financial reporting were effective as of year-end 2020 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2020[212] - Management's assessment concluded that internal control over financial reporting was effective as of December 31, 2020, a conclusion supported by an unqualified opinion from the independent auditor, Ernst & Young LLP[217] PART III Item 10. Directors, Executive Officers and Corporate Governance Required information for this item is incorporated by reference from the company's 2021 definitive proxy statement - The information for this item is incorporated by reference from the Registrant's Definitive Proxy Statement for the 2021 Annual Meeting of Stockholders[221] Item 11. Executive Compensation Required information for this item is incorporated by reference from the company's 2021 definitive proxy statement - The information for this item is incorporated by reference from the Registrant's Definitive Proxy Statement for the 2021 Annual Meeting of Stockholders[222] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Required information for this item is incorporated by reference from the company's 2021 definitive proxy statement - The information for this item is incorporated by reference from the Registrant's Definitive Proxy Statement for the 2021 Annual Meeting of Stockholders[223] Item 13. Certain Relationships and Related Transactions, and Director Independence Required information for this item is incorporated by reference from the company's 2021 definitive proxy statement - The information for this item is incorporated by reference from the Registrant's Definitive Proxy Statement for the 2021 Annual Meeting of Stockholders[224] Item 14. Principal Accountant Fees and Services Required information for this item is incorporated by reference from the company's 2021 definitive proxy statement - The information for this item is incorporated by reference from the Registrant's Definitive Proxy Statement for the 2021 Annual Meeting of Stockholders[225] PART IV Item 15. Exhibits and Financial Statement Schedules This section lists the exhibits filed as part of the Form 10-K, including various agreements and certifications - This section contains the index of all exhibits filed with the Form 10-K, including credit agreements, employment agreements, and certifications by the CEO and CFO[227][229]