[pic 1] [FINAL REPORT] [Company Analysis] | FIN 734-001 TEAM 6
|
CONTENTS
COMPANY DESCRIPTION 1
FINANCIAL PERFORMANCE 3
PROFITABILITY RATIOS 3
ACTIVITY RATIOS 5
LIQUIDITY RATIOS 7
THE COST OF CAPITAL 10
FREE CASH FLOW VALUATION 10
RELATIVE VALUATION 11
RECOMMENDATION 12
APPENDIX 13
EXHIBIT 19
REFERENCE 25
COMPANY DESCRIPTION
Steve Madden, Ltd. was founded in 1990. It is a publicly traded company based in Long Island, New York and traded as NASDAQ: SHOO. The company subsidiaries design and sell name brands and are a private label not only for footwear for women, men, and children, but also fashion handbags and accessories. The company operates through five segments: Wholesale Footwear, Wholesale Accessories, Retail, First Cost, and Licensing. Its products are sold in the United States, Canada, and China etc. through retail stores and e-commerce websites. It also provides merchandising support such as in-store fixtures and signage, or supervision.
In the Wholesale segments, the operations accounted for 85% of the whole company’s revenue, with 65% contributed to Footwear. Subsidiary retail owned and operated about 120 stores (90 full price stores, a dozen outlet stores, and three e-commerce sites), which accounted for 15% of sales in 2012. The company strategy was more focused on wholesale operations, as well as retails, which were small compared to wholesale but did bring an important growth in revenue to the company.
In 2012, the company acquired its license, Steve Madden Canada (SMC), for $29 million which allowed the company to privately hold its products in Canada on a wholesale basis and in branded retail stores. In 2014, the company earned $60.3 million by bringing Dolce Vita Holdings into their wholesales of branded and private label footwear.
Furthermore, the two valuable qualities of Steve Madden are strong brands and debt-free balance sheets. Being debt-free had given the company financial flexibility to continue growth, expansion, and wholesale opportunities. In 2016, Steve Madden’s cash, cash equivalents, and marketable securities were almost $200 million and no debt was shown. In 2017, the company demonstrated its commitment to returning capital to shareholders by repurchasing 2.6 million shares (approximately 4% of outstanding shares) for a total of $99 million. Its competitors are Skechers U.S.A., Inc. Class A, Deckers Outdoor Corporation, Crocs, Inc., and Caleres, Inc.
FINANCIAL PERFORMANCE
PROFITABILITY RATIOS
- Net profit margin
Net profit margin is a ratio used to calculate the percentage of profit a company produces from its total revenue. It measures the amount of net profit a company obtains per dollar of revenue gained. The profit margin is equal to net profit (also known as net income) divided by total revenue. Similarly, we can see from Exhibit 9 that its overall trend was also declining. The data for each year was almost less than 0.1, which showed that Steve Madden was not efficient at converting sales into actual profit. However, by comparing the data with its competitors, we still found that Steve Madden still had a higher net profit margin than the other companies. Thus, a long-term trend of the net margin is a good indicator of the competitiveness and health of the business.
- Operating profit margin
Operating profit margin ratio measures how much profit a company makes on a dollar of sales, after paying for variable costs of production such as wages and raw materials, but before paying interest or tax. It is calculated by dividing a company’s operating profit by its net sales. From the Exhibit 10, we could see from 0.15 in 2012 to 0.12 in 2017, its overall trend was declining. The data of 0.12 meant that each dollar earned in revenue brings 12 percent in profits. Furthermore, when compared with its competitors, we could conclude that Steve Madden was in a leading position in terms of data in these recent years. In the same industry, a company with a higher operating margin is more efficient in its operation. It is also more stable during industry slowdown or recessions.