International Expansion And Diversification Will Strengthen Future Prospects

Key Takeaways

• International expansion and diversification into accessories and apparel are key to driving future revenue and improving margins.
  
• Shifting production from China and focusing on direct-to-consumer channels will sustain profitability and boost e-commerce growth.
  
• Vulnerability in core products, reliance on Chinese sourcing, and increased expenses threaten cost structures, revenue, and margins amid market fluctuations and competition.

Catalysts

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

• Steve Madden's expansion into international markets, with significant growth in the EMEA region and new joint ventures in the Middle East and Latin America, is expected to drive future revenue growth.
  
• The company's focus on growing its business outside of footwear, particularly in the accessories and apparel segments, is likely to contribute to increased revenue and possibly enhanced margins due to strong product sell-through and expanded assortments.
  
• The acquisition of Almost Famous is ahead of schedule in realizing operating margin improvements, which could lead to increased overall earnings.
  
• Expansion of the direct-to-consumer business, especially through digital channels, is poised to grow revenue with the e-commerce segment showing accelerated growth and high single-digit growth expected for the year in this channel.
  
• Efforts to reduce reliance on Chinese sourcing and shifting production to other countries could mitigate the potential impact of tariffs, thereby sustaining profitability and margins.

Steven Madden Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Steven Madden's revenue will grow by 7.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.7% today to 11.0% in 3 years time.
• Analysts expect earnings to reach $303.9 million (and earnings per share of $4.28) by about December 2027, up from $170.5 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.5x on those 2027 earnings, down from 18.3x today. This future PE is lower than the current PE for the US Luxury industry at 18.8x.
• Analysts expect the number of shares outstanding to decline by 0.53% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.25%, as per the Simply Wall St company report.

Steven Madden Future Earnings Per Share Growth

Risks

• Reliance on Chinese sourcing may introduce tariff risks if tensions escalate, potentially affecting cost structures and gross margins.
  
• Delays in wholesale footwear deliveries, and cautious ordering by wholesale partners could impact revenue projections negatively.
  
• Increased operating expenses, due to heightened marketing spending, may compress operating income if revenue growth fails to offset these expenses adequately.
  
• A slowdown in wholesale footwear revenue and branded business decline indicate vulnerability in core product lines, possibly affecting overall revenue growth.
  
• Fluctuating demand and competitive dynamics in the accessories and apparel sectors could alter projected top-line growth, impacting earnings.

Valuation

• The analysts have a consensus price target of $46.67 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 $52.0, and the most bearish reporting a price target of just $42.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $2.8 billion, earnings will come to $303.9 million, and it would be trading on a PE ratio of 13.5x, assuming you use a discount rate of 7.3%.
• Given the current share price of $43.26, the analyst's price target of $46.67 is 7.3% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.