International Expansion And Diversification To Shape Future Success With Kurt Geiger Acquisition

Key Takeaways

• International expansion and diversification into accessories and apparel are poised to boost Steve Madden's revenue and potentially improve margins.
  
• Investments in DTC channels and reduced China supply chain dependency are expected to protect and enhance future profitability.
  
• Diversifying production and transitioning ownership models introduce risks and complexities, potentially impacting margins, cash flow, and international revenue streams.

Catalysts

Designs, sources, and markets fashion-forward branded and private label footwear, accessories, and apparel in the United States and internationally.

• Steve Madden is expanding its international presence, with significant revenue growth in EMEA and the Americas ex U.S. These expansions, including transitioning from a distributor to an ownership model, are likely to boost future revenues.
  
• The company is diversifying its product categories beyond footwear, with strong growth in accessories and apparel. This diversification is expected to positively impact revenue and possibly improve net margins due to higher-margin categories like handbags.
  
• The acquisition of Kurt Geiger is anticipated to drive significant future growth, contributing to revenue and earnings expansion while aligning with strategic goals of international and accessories market expansion.
  
• Transitioning from a China-dependent supply chain could mitigate tariff impacts, protecting future net margins by diversifying production locations and implementing selective price increases.
  
• Increasing investments in direct-to-consumer (DTC) channels, particularly e-commerce, is expected to enhance revenue growth and maintain or increase net margins as DTC channels often yield higher profitability.

Steven Madden Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Steven Madden's revenue will grow by 10.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.4% today to 8.2% in 3 years time.
• Analysts expect earnings to reach $249.2 million (and earnings per share of $3.48) by about March 2028, up from $169.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.9x on those 2028 earnings, up from 12.0x today. This future PE is lower than the current PE for the US Luxury industry at 17.2x.
• Analysts expect the number of shares outstanding to decline by 1.36% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.64%, as per the Simply Wall St company report.

Steven Madden Future Earnings Per Share Growth

Risks

• New tariffs on goods imported into the United States and efforts to diversify production out of China are expected to negatively impact earnings, affecting net margins.
  
• Handbag inventories in certain parts of the wholesale channel are backed up, resulting in constrained open-to-buys and more cautious ordering from key wholesale customers, which could impact revenue growth.
  
• The transition from distributor to an ownership model in key markets introduces operational complexities and risks, potentially affecting international revenue streams.
  
• Exposure to changes in global shipping and production dynamics could elongate inventory turnover times, impacting cash flow and cost of goods sold.
  
• The acquisition of Kurt Geiger, while strategic, involves integration risks and potential initial costs, which could put pressure on overall earnings.

Valuation

• The analysts have a consensus price target of $37.444 for Steven Madden based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $46.0, and the most bearish reporting a price target of just $35.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.0 billion, earnings will come to $249.2 million, and it would be trading on a PE ratio of 12.9x, assuming you use a discount rate of 7.6%.
  
• Given the current share price of $28.0, the analyst price target of $37.44 is 25.2% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.