Executive Summary / Key Takeaways

• Steven Madden demonstrated resilience in Q1 2025, exceeding earnings expectations despite a challenging start to the year, highlighting the strength of its brands and operational execution.
• The recent acquisition of UK-based Kurt Geiger adds a significant growth engine, particularly enhancing Steven Madden's presence in international markets and the high-growth accessories category, aligning with key strategic priorities.
• New tariffs on U.S. imports, especially from China, pose a meaningful near-term headwind, leading the company to withdraw its 2025 financial guidance due to heightened uncertainty.
• Steven Madden is leveraging its supply chain agility to aggressively accelerate production diversification out of China, targeting mid-teens China sourcing for Fall 2025 (ex-Kurt Geiger) and mid-single digits by Spring 2026, while also implementing price adjustments and cost savings.
• The company maintains a strong balance sheet and believes its operational model provides a competitive advantage to navigate the current disruption and potentially gain market share from less agile or capitalized competitors.

The Unfolding Narrative: Steven Madden's Strategic Evolution Amidst Global Shifts

Steven Madden, Ltd. stands as a prominent designer, sourcer, and marketer of fashion-forward footwear, accessories, and apparel. Operating in a highly competitive global market, the company has strategically evolved its business model over the years. Historically reliant on the U.S. wholesale footwear business, which constituted 55% of consolidated revenue in 2019, Steven Madden has successfully diversified its portfolio. By 2024, U.S. wholesale footwear was projected to account for less than 40% of the business, a testament to deliberate expansion into international markets, accessories and apparel, and direct-to-consumer channels. This strategic pivot, coupled with a focus on creating trend-right products supported by robust marketing, forms the bedrock of the company's growth strategy.

The competitive landscape is populated by diverse players ranging from large, vertically integrated corporations like Skechers USA, Inc. (SKX) and Deckers Outdoor Corporation (DECK) to broad lifestyle brands like VF Corporation (VFC) and luxury-leaning players such as Tapestry, Inc. (TPR). While competitors like SKX and DECK may possess advantages in vertical integration or niche performance technology, Steven Madden differentiates itself through its acute focus on fashion trends, a dynamic brand portfolio, a growing licensing business, and a rapidly expanding direct-to-consumer footprint. The company's operational model, which combines talented design teams with a test-and-react strategy and speed-to-market capability, serves as a critical differentiator, allowing it to respond swiftly to shifting consumer preferences and market demands.

This operational agility is perhaps Steven Madden's most significant "technological" advantage in a non-traditional sense. It's not about a patented material science but rather a highly refined process and supply chain network that enables rapid design, production, and distribution. This capability is supported by a multiyear effort to diversify sourcing beyond China to countries like Cambodia, Vietnam, Mexico, and Brazil. This diversification, while sometimes introducing longer transit times (averaging around 10 days longer globally at the end of 2024), also builds resilience and flexibility. The ability to lean on locations like Mexico and Brazil for faster turns is a tangible benefit of this network. This operational model allows Steven Madden to manage inventory effectively and, crucially, adapt quickly to external shocks like trade policy changes.

Performance Under Pressure: Navigating a Choppy Environment

Steven Madden's recent financial performance reflects both the success of its diversification strategy and the impact of external pressures. In the first quarter of 2025, consolidated revenue saw a modest increase of 0.2% to $553.5 million, compared to $552.4 million in the prior-year period. This was primarily driven by growth in Wholesale Footwear, Wholesale Accessories/Apparel, and Licensing, partially offset by a slight decline in Direct-to-Consumer.

Gross profit margin improved by 20 basis points to 40.9% in Q1 2025, primarily due to a favorable mix of branded business within the wholesale segments. However, operating expenses increased to 32.0% of total revenue, up from 29.8% in Q1 2024. This rise was attributed to continued investment in marketing and advertising, higher information technology costs, acquisition-related expenses, severance costs, and legal settlements, partially offset by a benefit from the change in valuation of contingent payment liabilities. Consequently, income from operations decreased to $53.5 million, or 9.7% of total revenue, compared to $56.7 million, or 10.3%, in the prior year. Net income attributable to Steven Madden, Ltd. for the quarter was $40.4 million, or $0.57 per diluted share, down from $43.9 million, or $0.60 per diluted share, in Q1 2024.

Despite the slight dip in Q1 profitability metrics compared to the prior year, the results significantly exceeded expectations, demonstrating the company's ability to execute even in a challenging environment characterized by sluggish industry trends in January and February before a pickup in March. Full-year 2024 results had previously shown robust growth, with revenue increasing 15% to $2.3 billion and diluted EPS rising 9% to $2.67 compared to 2023, highlighting the momentum prior to the recent tariff developments.

The Wholesale Accessories/Apparel segment has been a notable growth engine, driven by the Steve Madden handbag business, which surpassed $300 million in revenue in 2024, and the successful integration of the Almost Famous hosiery business acquired in March 2024, which contributed $179 million in revenue with a nearly 11% operating margin in its first full year. While this segment saw modest growth in Q1 2025, management anticipates pressure on the handbag business in 2025 due to excess inventory in the wholesale channel leading to cautious ordering.

The Direct-to-Consumer segment, a key strategic focus, saw a slight revenue decline in Q1 2025, primarily in brick-and-mortar, offset by digital growth. The segment's operating loss widened due to increased promotional activity and higher operating expenses. However, for the full year 2024, DTC revenue grew 9% (5% comp), demonstrating underlying strength. International expansion remains a critical driver, with strong performance in EMEA and Americas ex-U.S., supported by transitions to joint ventures in regions like Southeastern Europe, Latin America, Singapore, Malaysia, and Australia. International business is expected to outperform the U.S. in the near term, making this expansion even more vital.

Steven Madden maintains a strong balance sheet, with $147.2 million in cash, cash equivalents, and short-term investments and no cash borrowings under its credit facility as of March 31, 2025. Working capital stood at $491.5 million. Inventory increased to $238.6 million, an 18% rise year-over-year, primarily attributed to longer transit times and accelerated shipments ahead of tariff changes. This inventory build is viewed as strategic to navigate supply chain disruptions. The company has consistently returned capital to shareholders, with nearly $160 million in dividends and share repurchases in 2024.

Strategic Maneuvers and an Uncertain Horizon

The most significant strategic development is the completion of the Kurt Geiger acquisition on May 6, 2025. This acquisition, valued at approximately £289 million, adds a powerful brand known for its momentum in handbags and its positioning in the accessible luxury market. Kurt Geiger aligns perfectly with Steven Madden's strategic pillars: international expansion, growth in accessories, and direct-to-consumer channels. For the twelve months ended February 1, 2025, Kurt Geiger had revenue of approximately £400 million. The acquisition was funded through a new Amended and Restated Credit Agreement, providing a $300 million term loan and a $250 million revolving credit facility, alongside cash on hand. This resulted in a modest net debt position initially (about half a turn of net debt to EBITDA), with a plan to return to net debt zero over time. Management forecasts double-digit growth for Kurt Geiger this year and sees a long-term opportunity for it to become a double-digit operating margin business, up from an estimated 7.5% this year (factoring in tariffs and amortization).

However, the operating environment is fraught with uncertainty, primarily driven by new tariffs on goods imported into the United States. These tariffs, coupled with ongoing macroeconomic challenges, inflation, high interest rates, and geopolitical tensions, create significant headwinds. The unpredictability of tariff rates poses a material risk, potentially increasing costs, reducing margins, leading to order cancellations, higher pricing, and reduced consumer demand. This uncertainty directly led Steven Madden to withdraw its 2025 financial guidance.

In response, Steven Madden has swiftly implemented a three-pronged mitigation strategy:

1. Negotiating Factory Cost Concessions: Working with suppliers in China to limit the near-term impact on goods already in production.
2. Accelerating Sourcing Diversification: Capitalizing on the groundwork laid in alternative countries. The target is to reduce sourcing from China for U.S. imports (excluding Kurt Geiger) to the mid-teens percentage for Fall 2025 and the mid-single digits by Spring 2026. This is a sharp acceleration from the approximately 71% sourced from China in 2024.
3. Selective Price Increases: Surgically raising prices to consumers and wholesale customers, monitoring demand elasticity closely.

Additionally, the company is seeking expense savings, including a recent reduction in force expected to yield over $12 million in annual savings.

Competitive Positioning and Future Prospects

Steven Madden's competitive standing is defined by its brand strength, fashion-forward product, and operational agility. While competitors like SKX and DECK may have advantages in scale, vertical integration, or specific performance technology, Steven Madden's test-and-react model and diversified supply chain offer a distinct edge in navigating the current volatile environment. Its ability to quickly shift production and adapt assortments allows it to potentially gain market share from less nimble competitors, particularly private companies with higher China exposure. The company's strong balance sheet also provides flexibility to continue investing in growth initiatives like marketing and international expansion, even as less capitalized competitors may need to pull back.

Financially, Steven Madden's TTM gross profit margin of 40.93% and operating margin of 10.01% compare favorably to some competitors like VFC (52% gross, -0.0033% operating in FY24) but lag others like DECK (58% gross, 24% operating in FY25) and TPR (73% gross, 17% operating in FY24). Its TTM Debt/Equity ratio of 0.05 indicates a much stronger balance sheet than VFC (4.48) or TPR (3.03), providing significant financial flexibility. The Kurt Geiger acquisition, while adding some debt, is expected to be accretive to growth and eventually margins, further enhancing the competitive profile.

The withdrawal of guidance underscores the significant near-term uncertainty posed by tariffs. However, management's swift and decisive actions to mitigate the impact, coupled with the strategic benefits of the Kurt Geiger acquisition and the underlying strength of the diversified business model, position Steven Madden to potentially emerge stronger once the market stabilizes. The focus on accelerating the shift out of China, while challenging and potentially impacting margins and delivery times in the short term, is a critical long-term strategic move to build a more resilient supply chain.

Conclusion

Steven Madden faces a complex and uncertain near-term outlook, primarily driven by the unpredictable impact of new tariffs. The withdrawal of guidance reflects the severity of this challenge. However, the investment thesis for Steven Madden remains grounded in its proven ability to identify and capitalize on fashion trends, its strategically diversified business across channels and geographies, and its operational agility. The acquisition of Kurt Geiger adds a compelling new layer to the growth story, particularly in international markets and accessories. While profitability may face pressure in the near term due to tariffs and associated mitigation costs, the aggressive actions taken to diversify sourcing and manage expenses, combined with a fortress balance sheet, provide a solid foundation. Investors should closely monitor the execution of the sourcing shift, the impact of price adjustments on demand elasticity, and the integration and performance of the Kurt Geiger business as key indicators of Steven Madden's ability to navigate the current disruption and return to profitable growth in the longer term.