Heavens To Betsey
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Steven Madden Ltd (NASDAQ: SHOO) was the big beneficiary when famously eccentric fashion designer, Betsey Johnson, declared bankruptcy. Steven Madden received her trademark and licensing rights to most of her merchandise when it paid off Betsey Johnson LLC 's outstanding debt of $50 million in 2010.
Johnson closed 63 stores in the US in May 2012. When her Betsey Johnson stores were liquidated in NYC, saddened fashionistas braved around-the-block lines to buy what was believed to be the last of her designs.
Cartwheels On The Catwalk
Johnson, now 70, still performs cartwheels and splits at the end of her funky fashion shows. Even after 40 years in the rag trade Betsey Johnson's unique designs are still popular and edgy. Johnson has returned to the fashion world with a vengeance and in September hosted her first post-bankruptcy fashion show. She and her designer daughter will be the focus of a reality show scheduled to debut in January titled "Betsey+Lulu."(Finally, a reality show that might be fun to watch). What this means for Steven Madden, the shoe and accessories designer and retailer, is that renewed interest in Betsey will also reinvigorate the licenses Steven Madden holds as well as the 10% it still holds of Betsey Johnson LLC.
Who's Left Quaking In Their Boots
Steven Madden, the stock, has been cartwheeling ahead with its fashion forward men's, women's, and children's shoes and accessories leaving the stock of competitors like Deckers Outdoor Corp (NASDAQ: DECK) lagging at 52 week lows. Deckers' Tsubo and Uggs lines compete directly with Steven Madden on dress shoes and boots. With Uggs knockoffs selling at Old Navy's Black Friday sale for $14 and Steve Madden boots at $99 plus flying off the shelves at Macy's, Nordstrom, and Designer Shoe Warehouse, Deckers must be truly quaking in their boots.
Steven Madden also competes with Coach (NYSE: COH) as it too offers shoes, bags and accessories, but Steven Madden's are much more trendy. Coach is still a great retailer with a yield of 2.30% and a 15.26 P/E but it attracts an older demographic.
Betsey Johnson's designs are more whimsical and eclectic than the designs of competitor Michael Kors Holdings Ltd.(NYSE: KORS) (which also trades at a 40 P/E) and are a very good fit for Steven Madden's portfolio of brands. While KORS, the stock, has had an amazing run its forward P/E of 25.29 is still higher than Steven Madden.
Steven Madden, the founder, is still a designer for the company after a conviction for stock manipulation and a prison stint forced him to resign as CEO in 2002. The current Chairman and CEO, Edward Rosenfeld, is only 36 but on the call sounded seasoned,"We saw continued strength in the business during the third quarter, delivering the highest quarterly sales and earnings in the Company’s 22 year history. We achieved double-digit sales growth, gross margin improvement and operating expense leverage in both our wholesale and retail businesses in the quarter."
Analysts expected more on the EPS front, reporting $0.86 per share but that number was still up 18.8% over the prior year third quarter. They did beat on revenues, however, bringing in $356.9 million for a 13% surprise. Altogether they racked up double-digit EPS growth for five consecutive quarters.
Just The Icing On The Cake
Does this 22 year old company with a 36 year old CEO need a 70 year old designer? Analysts already give a mean price target of $52 for more than 25% upside. It has no debt and $190 million in cash. It trades at a 17.68 P/E with a forward P/E of 13.35. They don't actually need Betsey Johnson, but her licenses are a money making asset once again. Betsey Johnson's designs are more whimsical and eclectic than the designs of competitor Michael Kors Holdings Ltd.(NYSE: KORS) (which also trades at a 40 P/E) and are a very good fit for Steven Madden's portfolio of brands. It's just the icing on the cake like the one that Ms. Johnson's daughter jumped out of at the comeback fashion show.
More good news came for Steven Madden on Nov. 16 when Nike (NYSE: NKE) sold Cole-Haan for $570 million to Apax Partners, a private equity firm. Cole Haan, which sells shoes and accessories, was a direct competitor to Steven Madden. Steven Madden stock rose almost 2% on the news.
Cannacord Genuity reiterated SHOO a buy in August after their Growth Conference. Footwear and apparel analyst Camilo Lyon positively mentioned the strategic acquisition of Betsey Johnson in the introduction. At the growth conference CEO Rosenfeld said,"We’ve grown net sales from $457 million in 2008 to $1,148,000,000 in the latest 12-month period."
What's Betsey Worth
Forty one percent of shoe retail is athletic wear, but Steven Madden is part of the remaining fifty nine percent. The company owns 108 retail stores, two e-commerce stores (one of which is betseyjohnson.com) and the other 85% of the business is direct to merchants from Wal-Mart to Neiman Marcus.
Their ticker may read SHOO but at the conference Rosenfeld stressed that they are branching out from shoes and accessories. They're using Betsey Johnson as a platform, having launched a Betsey Johnson fragrance and a luggage line. They will be launching the Betsey Johnson dresses in 2013. How much is all that worth? CEO Rosenfeld said, "We feel (the line) should be generating between $15 million and $20 million of royalty income net expenses over the next few years."
Most of the Q&A at the Growth Conference was about Betsey Johnson. The big news was they're taking the brand international. "Many of our international partners are very excited about the brand. Some, in fact, have told us they think it can be bigger than Steve Madden," said Rosenfeld. Betsey Johnson stores will be opening soon in China and should be a big seller in Asia as the designs are very girly but sophisticated.
Shareholders will probably have very pleasant earnings surprises going forward as Betsey Johnson, the coolest septuagenarian ever, livens up the profit party at Steve Madden. With a young and talented CEO and excitement from international partners and fashionistas over the Betsey brand, this party should start with a big bang.
leglamp has no positions in the stocks mentioned above. The Motley Fool owns shares of Coach and Nike. Motley Fool newsletter services recommend Coach and Nike. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!