By MARILYN MUCH, INVESTOR'S BUSINESS DAILY
Steven Madden got the year off to a running start with a deal that should step up the pace of its Canadian business.
The fashion footwear and accessories designer and marketer has signed a pact to buy its privately held Canadian licensee SM Canada for roughly $29 million as it moves to up its presence in the region's growing market for the Steve Madden brand.
SM Canada markets Steven Madden products in Canada for wholesale distribution and via seven Steve Madden-branded stores.
Madden expects the transaction to add 5 to 7 cents in diluted earnings per share in 2012. SM Canada posted sales of $32 million in the 12 months ended July 31, 2011.
Madden plans to enhance its presence in top department stores and specialty stores in Canada and expand the number of its own branded stores in the region.
The deal, announced in January, comes on the heels of recent steps Madden has taken to boost sales and expand its brand portfolio, including last year's purchase of footwear producer and designer Topline and cold-weather-accessories outfit Cejon.
"It's another great acquisition," said B. Riley & Co. analyst Jeff Van Sinderen. "The price they're paying for this business appears to be reasonable. It's immediately accretive. And it allows them to take their business in Canada into their own hands and grow it more aggressively."
He says bringing the Canadian operation in-house gives Madden "complete control" over the business there.
That should help lift margins and drive additional revenue, he adds, since Madden "will utilize its existing infrastructure and economies of scale in deploying new growth initiatives in this region."
"While individually the acquisition of the Canadian business may not be worth writing home about, the totality of recent acquisitions and licenses makes for a great FedEx package," Sterne Agee analyst Sam Poser wrote in a Jan. 23 report, where he raised his 2012 and 2013 earnings estimates for Madden and reiterated his buy rating on its shares. "We view this acquisition as the latest example of broadening Steve Madden's reach and the company's serious intent for global growth."
Meanwhile, Madden has been enjoying a nice run. Sales and profits have climbed at double-digit rates for eight straight quarters. Most recently in the third quarter, earnings surged 37% to 74 cents a share. Sales soared 70% to $313.9 million as it enjoyed strong gains in each of its wholesale footwear, accessories and retail segments. Same-store sales popped 13.2% vs. the prior year. It was the fifth straight quarter of double-digit same-store sales gains.
Followers expect Madden to report healthy fourth-quarter results. Analysts polled by Thomson Reuters see profits rising 32% to 54 cents a share. They expect full-year earnings to increase 25% to $2.24 a share.
Madden markets products under its owned brands, such as Steve Madden, Betsey Johnson and Cejon. It also designs and sources products under private-label brands for various retailers. At the wholesale level, it distributes its products to various retailers, including department stores, specialty stores and national chains. As of Sept. 30, 2011, it had 82 retail stores, of which were 72 full-price Steve Madden stores, five were Steve Madden outlet stores, three were under the Steven name, one was under the Report name and one was its e-commerce site.
Recent buys have enhanced Madden's already-growing business. Topline is among the deals that brought a lot to the table. The company designs, produces and sources private-label and branded footwear. Its owned brands include Report and Report Signature.
Topline brought to Madden a top-notch private-label business and fast-growing brands, Madden's Chief Executive Edward Rosenfeld said in a statement at the time of the buy. It also brought a "premier direct sourcing platform" that presents opportunities for Madden, he said.
Topline has direct sourcing relationships with factories, while Madden sources most of its products via agents, which is more costly. Poser says once Madden starts using Topline's factories to produce its Madden Girl shoes, which is slated for later this year, it will eliminate the agents' fees and likely cut production costs and increase margins.
The company has fared well on other deals. That includes the acquisition of the intellectual property of apparel firm Betsey Johnson as part of a debt-restructuring deal in 2010.
Under the deal, Madden received trademarks of Betsey Johnson as well as a 10% equity interest in the firm in exchange for the retirement of $27.6 million in debt.
"To me, it's the most outstanding acquisition they've made in the last 18 months," said Van Sinderen.
Madden gets royalties on sales at Betsey Johnson retail stores, which Johnson oversees herself, he says. It's also developed new products and extended the Betsey Johnson brand for the wholesale channel with more apparel and accessories. Plus, Madden launched the brand into footwear, which Van Sinderen says is doing "extremely well."
Watchers expect Madden to keep up the fast pace it's been experiencing as it continues to benefit from recent acquisitions and enhances its own offerings. Analysts polled by Thomson Reuters forecast 2012 earnings will pop 20% to $2.69 cents a share. They see a 16% gain in 2013.