Steven Madden, Ltd. (SHOO) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Steven Madden Annual Shareholder Meeting. At this time, the meeting will begin, and it is my pleasure to turn the floor over to your host, Ed Rosenfeld. Sir, the floor is yours.

Thank you. Good afternoon, ladies and gentlemen. I'm Ed Rosenfeld, Chairman and CEO of Steven Madden Limited, and I will act as Chair of this annual meeting of stockholders. I'd like to welcome you to our 2020 annual meeting, and thank you for joining us this afternoon. It's now 2:00 p.m., and I'm pleased to call the meeting to order. Due to the COVID-19 pandemic and the limitations on in-person meetings that have been established as a result, we are hosting this year's annual meeting in a virtual format. We have stockholders attending via the web portal. Next year, we expect to return to the in-person format that we have traditionally used. We will conduct the business portion of our meeting first, followed by a brief overview of the company's performance, and then we'll answer questions. Although we may not be able to answer all of your questions, we'll do our best to get to as many as possible. [Operator Instructions] Joining us today from our Board of Directors are Al Ferrara, Rose Peabody Lynch, Peter Migliorini, Thomas H. Schwartz, Ravi Sachdev and Robert Smith. Members of the company's management team are in attendance as well, including Awadesh Sinha, our Chief Operating Officer; Arvind Dharia, our Chief Financial Officer; and Lisa Keith, our General Counsel. Also present by invitation are Mike Petrane and John C. Ready, partners of the accounting firm of Ernst & Young LLP, our independent registered public accounting firm. And finally, [ Barry Shapiro ], representative of Broadridge Financial Solutions, Inc., who has been selected to serve as the inspector of election, is with us today. Certain formalities are required to convene this annual meeting, after which the proposals stated in the notice of annual meeting and described in the proxy statement that you received will be addressed. I would like to begin by calling your attention to the agenda of the annual meeting, which is available on the website provided to you. The business of this annual meeting will follow the order set forth in the agenda. Unless otherwise invited, only stockholders or holders of their proxies eligible to vote at this annual meeting may participate in this annual meeting. Now I'd like to present Arvind Dharia, the company's Chief Financial Officer and Corporate Secretary, who will act as the secretary of this annual meeting. Arvind, would you please address some of the other administrative formalities relating to this annual meeting?

Yes. Thank you, Mr. Rosenfeld. Good afternoon, everyone, and welcome. The list of the holders of record of the company's common stock at the close of business on March 30, 2020, the record date for this annual meetings, is available for inspection by stockholders of record for any purpose germane to this annual meeting on the virtual meeting page. Further, I have received the affidavit of distribution, executed on behalf of Broadridge Financial Service Solutions Inc. (sic) [ Broadridge Financial Solutions, Inc. ] as to the mailing of notice of this annual meeting, company's annual report for fiscal year ended December 31, 2019, the company's 2020 proxy statement and the proxy card. The affidavit of distribution will be appended to the minutes of this annual meeting. As mentioned earlier, [ Mr. Barry Shapiro ], a representative of Broadridge Financial Service Solution, Inc. (sic) [ Broadridge Financial Solutions, Inc. ] Has been duly selected to serve as the inspection of election (sic) [ inspector of election ] at this annual meeting. [ Mr. Shapiro ] has signed an oath of office to faithfully execute the duties of inspector with strict impartiality and according to the best of his ability. The oath of inspector will be appended to the minutes of this annual meeting. For purpose of compliance with The Delaware General Corporation Law, which governs this meetings, the polls for the matters to be voted upon at this annual meeting being opened today, Friday, June 5, 2020, upon the conclusion of the preliminaries of this annual meetings. If you have already voted by proxy, there is no need to submit under proxy. If you have not yet voted and wish to do so or if you have voted and wish to change your vote, you may do so by clicking on the voting button on the web portal and the following instruction there. Okay. I have received from the inspector of election, this report has a quorum. The report indicates that according to the certificate stockholders list from the American Stock Transfer & Trust Company, the company's stock transfer agent, there were 83,169,060 shares of company common stock outstanding and eligible to vote as of March 30, 2020, the record date for this annual meeting. The report also indicates that the number of shares of common stock represented at this annual meeting in-person or by proxy is not less than 77,681,487, which is 93.4% of the shares eligible to vote and constitutes a quorum for the purpose of transaction business at this annual meeting. Accordingly, the annual meeting is legally convened. The report will be appended to the minutes of this annual meeting. This completes the administrative formalities. I turn the annual meeting back to the Chairman, Ed Rosenfeld.

Thank you, Arvind. So now we will proceed to the formal items of business before this annual meeting. I now declare the polls open. The polls will remain open until all of the proposals have been presented. Any stockholder who wishes to vote may do so now until the polls are closed. Please note that we will afford stockholders an opportunity to comment on the proposals themselves after all proposals have been presented. As indicated in the notice of annual meeting of stockholders and the proxy materials provided to you by management of the company, the purpose of this annual meeting is: One, to elect 9 directors to the Board of Directors of the company; two, to ratify the appointment of Ernst & Young LLP as the company's independent registered public accounting firm for the fiscal year ending December 31, 2020; and three, to approve, on a nonbinding advisory basis, the compensation of our executive officers as disclosed in the 2020 proxy statement. Arvind, will you present the proposals?

Yes. The first proposal is the election of 9 directors nominees. Mr. Chairman, on the behalf of the Board of Directors, I nominate the following individuals to serve as directors of the company to serve until the next annual meeting of our stockholders and until his or her successor is elected and qualified or their earlier death, resignations or removal from office: Edward R. Rosenfeld, Al Ferrara, Mitchell S. Klipper, Rose Peabody Lynch, Peter Migliorini, Ravi Sachdev, Thomas H. Schwartz, Robert Smith, Amelia Newton Varela. The second proposal is the ratification of the appointment of Ernst & Young LLP as the company's independent registered public accounting firm for the fiscal year ending December 31, 2020. The Board of Directors unanimously recommended a vote in favor of this proposal. The third proposal is the approval, on a nonbinding advisory basis, of the compensation paid to the company's executive officers, Edward R. Rosenfeld, Amelia Newton Varela, Arvind Dharia, Awadhesh Sinha and Karla Frieders, as described in the 2020 proxy statement in the section captioned Compensation Discussion Analysis (sic) [ Compensation Discussion and Analysis ] and Executive Compensation and in the Summary Compensation Table included in 2020 proxy statement. The Board of Directors unanimously recommended a vote in favor of this proposal.

Thanks, Arvind. If any stockholder would like to make a comment regarding any of the proposals that have been presented, please submit your comment through the web portal. And now I will pause for a few moments to allow time for final voting. [Voting]

Okay. The polls are now closed, and the inspector of election is now tabulating the votes. All right, the inspector of election has completed his preliminary tabulation of the votes and has delivered his report as to the voting. As shown by the report, the stockholders have; One, elected the following persons as directors of the company until the company's next annual meeting of stockholders and until their respective successors shall be duly elected and have qualified or their earlier death, resignation or removal from office, Edward R. Rosenfeld, Al Ferrara, Mitchell S. Klipper, Rose Peabody Lynch, Peter Migliorini, Ravi Sachdev, Thomas H. Schwartz, Robert Smith and Amelia Newton Varela; two, ratified the appointment of Ernst & Young LLP as the company's independent registered public accounting firm for the fiscal year ending December 31, 2020; and three, approved on a nonbinding advisory basis, the compensation of certain executive officers as disclosed in the accompanying proxy statement. The final report as to the voting will be appended to the minutes of this annual meeting and disclosed as required by applicable SEC rules. So there being no further business to come before this annual meeting, the 2020 annual meeting is now adjourned. And now I'd like to take the opportunity to speak to you about the company and its performance, followed by our question-and-answer session. But first, Danielle McCoy, our Director of Corporate Development and Investor Relations, will make a statement.

Thanks, Ed. I'd like to remind you that the matters discussed at this annual meeting by the company's officers or directors may include certain forward-looking statements as defined in the federal securities laws regarding our expectations or predictions about the future. Generally, these statements relate to projections involving anticipated revenues, earnings or other aspects of the company's operating results. Because these statements are based on current assumptions and expectations, they involve known and unknown risk, uncertainties and factors not within the company's control. And as such, our actual performance and results may differ materially from these statements. Our annual report and other reports filed with the SEC from time to time include detailed discussions of the risk the company faces, and we urge you to refer to these. Specifically, the COVID-19 pandemic has had and is currently having a significant impact on the company's business operations and results. Such forward-looking statements with respect to the COVID-19 pandemic include, without limitation, statements with respect to the company's plans in response to this pandemic. At this time, there is a significant uncertainty about the duration and extent of the impact of the COVID-19 pandemic. Due to the dynamic nature of these circumstances, statements made at this meeting regarding the company's response to the COVID-19 pandemic could change at any time. Any forward-looking statements represent our judgment as of the time of this meeting and cannot be relied upon as current after today's date. We disclaim any intent or obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required under applicable law. With that, I'll turn it back to you, Ed.

Thanks, Danielle. Our annual meeting this year comes at a difficult moment in our nation's history. We are in the midst of the greatest public health crisis in over a century, the COVID-19 pandemic, which has already resulted in more than 100,000 deaths in the United States. At the same time, the killing of George Floyd by a police officer has sparked outrage, demonstrations and unrest across the country. At Steve Madden, our hearts go out to all those impacted by COVID '19 as well as to George Floyd's family and all people of color who experience the racism that has plagued our country. I also want to take a moment to thank our employees for their extraordinary efforts, particularly these last few months. They have truly inspired me with their dedication, spirit and resilience in the face of adversity. 2019 was a strong year for Steve Madden. We delivered robust financial results, with revenue increasing 6.5% to over $1.7 billion, and adjusted diluted EPS rising 6.2% to $1.95 despite significant headwinds from the bankruptcy of Payless ShoeSource and the tariffs implemented on accessories, footwear and apparel from China. We also made progress on a number of key initiatives that position the company for the future. The highlight of 2019 was the outstanding performance of our flagship Steve Madden brand. Once again, Steve and his design team created trend-right product assortments that resonated with consumers and enabled us to outpace the competition. In wholesale, the brand saw strong growth and market share gains in its core women's footwear and handbag categories. And in our Retail segment, we delivered a 6% overall comparable store sales increase for the year, powered by a 60% sales increase on stevemadden.com. Expanding our digital commerce business has been a top priority for the company, and we've made significant investments in that area over the last couple of years. So we were particularly pleased to see the outstanding top line growth, which was accompanied by even faster bottom line expansion on stevemadden.com. Our Steve Madden brand also continued to build momentum in international market, another of our most important long-term growth initiatives, with international revenue increasing high single digits on a percentage basis for the year. In addition to seeing strong performance in our European joint venture, we formed a new joint venture in China with our partner Channel Link. We also completed 2 acquisitions that provide the company with meaningful growth opportunities going forward. GREATS is a Brooklyn-based digitally native sneaker brand. We see GREATS as highly complementary to the other brands in our portfolio and are optimistic that we can grow the brand significantly in the coming years with an enhanced product assortment and expanded distribution. And BB Dakota is a California-based contemporary women's apparel company. Given the strong alignment of the BB Dakota brand and product assortments with the spirit of the Steve Madden brand, we think BB Dakota makes an ideal apparel partner for us. And despite the disruption from the pandemic, we remain on track to transition the majority of the BB Dakota offering to become a co-branded BB Dakota Steve Madden line this fall. In 2019, we also utilized our strong balance sheet and healthy free cash flow to return capital to shareholders, completing approximately $150 million in share repurchases and dividends. While both share repurchases and the quarterly cash dividend are currently suspended in response to the COVID-19 pandemic, we remain committed to returning capital to shareholders and expect to resume both once the environment normalizes. Finally, at Steve Madden, we believe that how we do business is just as important as how well we do. In 2019, we took a number of steps to formalize and enhance our corporate social responsibility efforts as well as to increase the transparency and disclosure about those activities. We established a dedicated CSR team and a CSR committee of the Board of Directors. We also implemented initiatives throughout our business to protect human rights, limit environmental impact, promote diversity and inclusion and engage with our communities. You will be able to learn about these initiatives in our first sustainability report, which we plan to publish in the coming weeks. So overall, 2019 was a very good year for Steve Madden. Now, however, we face extraordinary challenges due to the COVID-19 pandemic, and our focus is squarely on protecting the safety of our employees, customers and the broader community while working to ensure the long-term viability and strength of our business. As discussed in our first quarter earnings call last week, we entered this crisis with an exceptionally strong balance sheet, and we have since taken a number of additional measures to preserve liquidity and enhance financial flexibility. We suspended share repurchases and our quarterly cash dividend, and we scaled back all nonessential operating expenses, capital expenditures and inventory receipts. We also made difficult decisions with respect to our people, including furloughing a significant portion of our employees as well as temporarily reducing the salaries of all remaining employees with salaries greater than $100,000. Finally, we drew down the maximum $50 million from our existing credit facility, and we began the process of securing a new larger asset-based revolving credit facility that we hope to close on by the end of this month. And while we cannot minimize the challenges we are facing, clearly, our organization is being tested like never before. My confidence in our ability to get through this and emerge a strong and thriving company is unwavering. And it's a function of our unique advantages as a company, including: One, our fortress balance sheet; two, the strength of our brands, particularly our flagship Steve Madden brand; three, the strong positioning and momentum we have in the 2 channels that we view as share gainers in the new retail landscape, e-commerce and value; and four, our proven business model, including our industry-leading inventory turns and speed-to-market capabilities, which should help us to mitigate risk in this uncertain environment and serve as a key advantage relative to the competition. So while we are clear-eyed about the near-term challenges we face, we are confident that we are well positioned to navigate the crisis and to restore momentum and return to profitable growth when conditions normalize. Thank you again for joining us today and for your continued support of Steve Madden. And with that, I'd be happy to take your questions.

There are no questions at this time.

Okay. If there are no questions, thank you for your attendance and your support of Steve Madden. Have a great day, and have a great weekend.

Thank you, ladies and gentlemen. This does conclude today's shareholder meeting. Thank you for your participation, and have a wonderful day.