In Focus

Steve Madden, Ltd: A Shoe-In

Like many women, I find it frustrating trying to figure out what to wear day to day. As the mother of two little girls and working from home, I tend to spend the majority of my time in sweats. And as I'm sure some of you can relate, spending a lot of time in sweats with an elastic waistband can sometimes make for an expanding waistline. So when the odd occasion comes around when I need to actually shower and look presentable, finding suitable clothing can cause a rapid heartbeat and nausea. Last Friday was one of those occasions.

We were headed out for a nice dinner with some friends we hadn't seen in quite some time. I tried on at least five different outfits and was completely miserable with each one. My rear area was a bit on the wide side, and even a suit made me feel stocky and heavy rather than long and lean. Thinking to myself "If only I were taller" I ran to my closet and pulled out my favorite Steve Madden high, clunky shoes. Voila! Instant weight loss.

Think about it. When you're out shopping with friends and you're feeling a little weighty, isn't it so much more fun to shop for shoes? You never have to worry about your heels getting fat, right? Your feet always look pretty good (sans fungi nails and warts, but then we just avoid open-toed shoes). So I got to thinking about my life-saving Steve Maddens and the next day I jumped online to check them out using our Chicks' Dozen. Here's what I uncovered.

Buy What You Know: Well, we all know shoes. We all HAVE to wear them. After all No Shoes, No Shirt, No Service.

K.I.S.S.: Is the industry easily understood? Goes without saying.

Industry: Consumer Cyclical; Sector: Shoes & Related Apparel. Basic stuff.

Leader In Its Industry: Steve Madden, Ltd. (SHOO/Nasdaq) does really well against its competitors, Kenneth Cole and Nine West, etc. There have been many times I've seen a great new Madden style come out that is quickly copied by other vendors. Usually those copy-cats get stomped on.

Repeat Purchase of a Low Priced Product: For me this is a given. I find their prices to be reasonable. It's not Payless (I don't want Payless), but then it's also not like Joan & David or other shoe manufacturers that on average cost twice the amount as Maddens.

The following numbers were found at www.edgar-hoovers.com:

Gross Margin: 43.08%

Net Margin: 7.5%

Cash 1.5x Debt: There is no long-term debt.

Flowie: 3.12 (Not great. In fact, not even good. Does this mean that they have a lot of outdated shoes on their back shelves? Probably. We'd like to see a little better management of the flow here.)

Increasing Growth: In the last five years shoes sales have been up 12.9% v. the S&P at 9.2%. SHOO's last report, released November 8, 2000, showed record results. Their net income was up 33% to 4.6 million. Ya wanna see growth? How about 17 consecutive quarters exceeding expectations?

Strong Management: This gets tricky. CEO Steve Madden started the company back in 1990. Rhonda Brown, formerly SHOO's COO, has been named President as well as COO. During her tenure, sales have grown on average 53% annually. Now, let's not sit here playing footsie.You're wondering if CEO Steve Madden's arrest this past June for securities fraud should make us give him the boot. Here's my humble opinion. Since the announcement Mr. Madden has stayed on as CEO but there is an interim officer filling his shoes. Rhonda Brown has continued on in her very successful run as President/COO, and it appears regardless of the 40% plummet the stock experienced, their earnings are phenomenal.

Our friends over at the Fool discussed this topic back in June and reminded us that their Rulemaker philosophy includes a primary rule of thumb: Sell a company if there is proof of Crooked Management. On the surface that would have appeared to be quite sensible in this case as well. But it has been five months since this scandal occurred and it hasn't had any ill effects on the company itself. Its stocks are still selling incredibly cheaply (see below) and I have a hunch that Steve Madden is more of a front man to this operation than the man purely responsible for its success. The namesake has been a great attribute for the company; but the people behind the scenes, the Rhonda Brown's, are more than likely playing a bigger role in the day-in, day-out operations and will continue to be responsible for the future accomplishments of SHOO.

Is It On Sale?

52 Week High: 22.62

52-Week Low: 5.50

Current Price: 7.13

In retrospect, SHOO has built quite the reputation. They've continued to grow and have shown they can continue to be innovative in a volatile business. Trendiness can be the demise of many shoe/apparel companies. Whether or not they consistently stay on top speaks volumes and Steve Madden, Ltd. has talked the talk. BUT can they walk the walk??

I'd walk a mile in their Fugee's anytime. Or their Alpha's, or Cambry's...