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Article by DailyStocks_admin    (03-16-08 12:28 PM)

The Daily Magic Formula Stock for 03/13/2008 is Steven Madden Ltd. According to the Magic Formula Investing Web Site, the ebit yield is 25% and the EBIT ROIC is 50-75 %.

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Steven Madden, Ltd. (together with its subsidiaries, the "Company") designs, sources, markets and retails fashion-forward footwear for women, men and children. In addition, the Company designs, sources, markets and retails name brand and private label fashion handbags and accessories through its Daniel M. Friedman Division. The Company distributes products through its retail stores, its e-commerce website, department and specialty stores throughout the United States and Canada and through special distribution arrangements in Europe, Central and South America, Australia and Indonesia. The Company's product line includes a broad range of updated styles which are designed to establish or capitalize on market trends, complemented by core products. The Company has established a reputation for its creative designs, popular styles and quality products at accessible price points.

The Company's business is comprised of three (3) distinct segments (wholesale, retail and first cost divisions). The Wholesale Division includes six (6) core brands: Steve Madden(R), Steve Madden Mens, Candie's(R), SMNY/Madden Girl, Steven(R) and Stevies(R). In addition, the Daniel M. Friedman Wholesale Division, through license agreements, includes the Ellen Tracy, Betsey Johnson and Tracy Reese brands. Steven Madden Retail, Inc., the Company's wholly-owned retail subsidiary, operates Steve Madden(R) and Steven(R) retail stores as well as the Company's e-commerce website. The Company's wholly-owned subsidiary, Adesso-Madden, Inc., acts as a buying agent for footwear products under private labels for many of the country's large mass merchandisers. The Company also licenses its Steve Madden(R) and Steven(R) trademarks for several accessory and apparel categories.

Steven Madden, Ltd. was incorporated as a New York corporation on July 9, 1990 and reincorporated under the same name in Delaware in November 1998. The Company completed its initial public offering in December 1993 and its shares of Common Stock currently trade on The NASDAQ Global Market under the symbol "SHOO".

The Company maintains its principal executive offices at 52-16 Barnett Avenue, Long Island City, NY 11104, telephone number (718) 446-1800.

The Company's website is http://www.stevemadden.com. The Company makes available, free of charge, on its website its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, any amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and its Proxy Statement for its Annual Meeting as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (the "Commission"). The Company will provide paper copies of such filings free of charge upon request.

Wholesale Divisions

Madden Women's Wholesale Division

The Steve Madden(R) Women's Wholesale Division ("Madden Women's") designs, produces, sources and markets the Company's Steve Madden(R) brand to major department stores, better specialty stores and independently owned boutiques throughout the United States. The Steve Madden(R) brand has become a leading life-style brand in the fashion conscious marketplace. To serve its customers (primarily women ages 16 to 35), Madden Women's creates and markets fashion forward footwear designed to appeal to customers seeking exciting, new footwear designs at affordable prices.

As the Company's largest division, Madden Women's accounted for $150.3 million of net sales in the year ended December 31, 2006, or approximately 32% of the Company's total net sales. Many new products for Madden Women's are test marketed at the Company's retail stores. Within a few days, the Company can determine if the test product appeals to customers. This enables the Company to use its flexible sourcing model to rapidly respond to changing trends which the Company believes is essential for success in the fashion arena.

Madden Mens Wholesale Division

The Steve Madden Mens Wholesale Division ("Madden Mens") designs, produces, sources and markets a full collection of directional men's shoes through major department stores, better specialty stores and independent shoe stores throughout the United States. Price points range from $70 to $100 at retail, targeted at men ages 20 to 40 years old. Madden Mens accounted for $62.6 million of net sales in the year ended December 31, 2006, or approximately 13% of the Company's total net sales. Madden Mens, which is primarily produced in China, maintains open stock inventory positions in select patterns to serve the replenishment programs of its wholesale customers.

Candie's Wholesale Division

Pursuant to the Company's license agreement with Candie's, Inc.,
("Candie's"), the Company designs, produces, sources and markets Candie's(R)
branded footwear for women and children worldwide through the Company's Candie's Wholesale Division ("Candie's Wholesale"). Candie's Wholesale generated net sales of $27.1 million for the year ended December 31, 2006, or approximately 6% of the Company's total net sales.

On December 6, 2004, the license agreement with Candie's was amended to reflect Candie's decision to name Kohl's Corporation ("Kohl's") as the exclusive provider of a new line of Candie's apparel. Pursuant to the amendment, commencing on January 1, 2007, the Company no longer has the exclusive right to market Candie's(R) branded footwear and is permitted to sell Candie's(R) branded footwear only to Kohl's. Under the terms of the amendment, Candie's has guaranteed that the Company will achieve minimum sales levels with Kohl's during the term of the agreement, which runs through December 31, 2010. In the event such minimum sales levels are not achieved, Candie's is required to compensate the Company in an amount based on a percentage of the sales shortfall. For the year ended December 31, 2006, the minimum sales level was met.

SM New York / Madden Girl - Wholesale Division

The SM New York Wholesale Division ("SMNY/Madden Girl") designs, produces, sources and markets a full collection of directional young women's shoes. In order to consolidate brand identity, the SMNY(TM) brand will transition to "Madden Girl" beginning with the spring 2007 offerings. SMNY/Madden Girl is geared for young women ages 13 to 20 and is an "opening price point" brand that is currently being sold at department stores, mid-tier retailers and specialty stores. SMNY/Madden Girl accounted for $24.5 million of net sales in the year ended December 31, 2006 or approximately 5% of the Company's total net sales.

Diva Acquisition Corp. - Steven(R) Wholesale Division

Diva Acquisition Corp. ("Steven(R)") designs, produces, sources and markets women's fashion footwear under the Steven(R) trademark through major department and better footwear specialty stores throughout the United States. Priced a tier above the Steve Madden(R) brand, Steven(R) products are designed to appeal principally to fashion conscious women, ages 26 to 45, who shop at department stores and footwear boutiques. Steven(R) generated net sales of $22.1 million for the year ended December 31, 2006, or approximately 5% of the Company's total net sales.

Stevies - Wholesale Division

The Company's Stevies(R) Wholesale Division ("Stevies(R)") designs, produces, sources and markets footwear for young girls to major department stores, such as Federated Department Stores and Belk, better specialty stores and independent boutiques throughout the United States. Stevies(R) generated net sales of $7.6 million for the year ended December 31, 2006 or approximately 2% of the Company's total net sales.

Daniel Friedman Wholesale Division

On February 7, 2006, the Company acquired all of the equity interest of privately held Daniel M. Friedman and Associates, Inc. The acquisition was completed for consideration of $18.7 million, including transaction costs. In addition, the purchase agreement provides for certain earn out payments based on financial performance through 2010. The Company's Daniel M. Friedman Wholesale Division ("Daniel M. Friedman") designs, sources and markets name brand and private label fashion handbags and accessories to major department stores, value price retailers and better specialty stores throughout the United States. Daniel M. Friedman generated net sales of $51.3 million from the date of acquisition until December 31, 2006 or approximately 11% of the Company's total net sales.

Retail Division

Steven Madden Retail, Inc.

As of December 31, 2006, the Company owned and operated ninety-three
(93) retail shoe stores under the Steve Madden(R) name, two (2) under the Steven(R) name and one (1) Internet store (through the www.stevemadden.com website). In 2006, the Company opened four (4) new stores and closed six (6) under-performing stores. Steve Madden stores are located in major shopping malls and in street locations across the United States. In 2006, the retail stores generated annual sales in excess of $719 per square foot. Sales are primarily from the Company's Steve Madden(R) products. Comparative store sales (sales of those stores that were open for all of 2006 and 2005) increased 4% in 2006 compared to 2005. Net sales for the Retail Division were $127.7 million for the year ended December 31, 2006, or approximately 27% of the Company's total net sales.

The Company believes that the Retail Division will continue to enhance overall sales and profitability while building equity in the Steve Madden brand. The Company plans to add eight to ten (8 to 10) new retail stores during 2007. The expansion of the Retail Division enables the Company to test and react to new products and classifications which, in turn, strengthens the product development efforts of the Steve Madden Wholesale Division.

First Cost Division

Adesso-Madden, Inc.

In September 1995, the Company incorporated Adesso-Madden, Inc. as a wholly owned subsidiary ("A-M"). A-M was formed to serve as a buying agent to mass-market merchants, shoe store chains and other value-priced retailers in connection with the procurement of their footwear needs. As a buying agent, A-M arranges for shoe manufacturers to produce private label shoes to its customers specifications. The Company believes that by operating in the private label, mass merchandising market, it is able to maximize additional non-branded sales opportunities. This leverages the Company's overall sourcing and design capabilities. Currently, this division serves as a buying agent for the procurement of women's, men's and children's footwear for large retailers, including Target, Wal-Mart, Mervyns, J.C. Penney and Sears. A-M receives buying agent's commissions from its customers. In addition, the Company has leveraged the strength of its Steve Madden brands and product designs resulting in a partial recovery of its design, product and development costs from its suppliers. The First Cost Division generated operating income of $11.3 million for the year ended December 31, 2006.


As of December 31, 2006, the Company licensed its Steve Madden(R) and Steven(R) trademarks for use in connection with the manufacturing, marketing and sale of cold weather accessories, sunglasses, eyewear, watches, dresses and girl's apparel. Most of the license agreements require the licensee to pay to the Company a royalty based on actual net sales, a minimum royalty in the event that specified net sales targets are not achieved and a percentage of sales for advertising the brand. Licensing income for the year ended December 31, 2006 was $2.9 million.


The Company has established a reputation for its creative designs, marketing and trendy products at affordable price points. The Company believes that its future success will substantially depend on its ability to continue to anticipate and react to changing consumer demands in a timely manner. To meet this objective, the Company has developed an unparalleled design process that allows it to recognize and act quickly to changing consumer demands. The Company's design team strives to create designs which it believes fit the Company's image, reflect current or future trends and can be manufactured in a timely and cost-effective manner. Once the initial design is complete, a prototype is developed, which is reviewed and refined prior to the commencement of initial production. Most new products are then tested in selected Steve Madden(R) retail stores. Designs that prove popular are then offered for wholesale and retail distribution nationwide. The Company believes that its design and testing process and flexible sourcing model is a significant competitive advantage allowing the Company to mitigate the risk of production costs and the distribution of less desirable designs.

Product Sourcing and Distribution

The Company sources each of its product lines separately based on the individual design, styling and quality specifications of the products in such product lines. The Company does not own or operate manufacturing facilities; rather, it sources its branded products through agents with independently owned manufacturers in China, Brazil, Italy, Mexico, Spain, Portugal and the United States. The Company has established relationships with a number of manufacturers and agents in each of these countries. Although the Company has not entered into any long-term manufacturing or supply contracts, the Company believes that a sufficient number of alternative sources exist for the manufacture of its products. The Company continually monitors the availability of the principal materials used in the Company's footwear, which are available from a number of sources, both within the United States and in foreign countries. The Company tracks inventory flow on a regular basis, monitors sell-through data and incorporates input on product demand from wholesale customers. The Company uses retailers' feedback to adjust the production or manufacture of new products in as little as five weeks, which minimizes the close out of slow moving products.

The Company distributes its products from three (3) third-party distribution warehouse centers located in California and New Jersey. By utilizing distribution facilities that specialize in distributing products to certain wholesale accounts, Steve Madden(R) retail stores and Internet fulfillment, the Company believes that its customers are better served.


The Company's wholesale customers consist principally of department stores and specialty stores, including independent boutiques. Approximately 82% of its wholesale revenue is generated from department and specialty stores, including Federated Department Stores (Macy's and Bloomingdale's) Lord and Taylor, Dillard's, Nordstrom, Journeys, Limited Too and Mandees; and catalog retailers, including Victoria's Secret and Fingerhut. For the year ended December 31, 2006, Federated Department Stores accounted for approximately $60.7 million, or 17% of the Company's wholesale net sales and 13% of the Company's total net sales.

Distribution Channels

The Company sells its products principally through its Company-owned retail stores and through department stores, specialty stores and discount stores in the United States and abroad. For the year ended December 31, 2006, net sales from the Company's Retail Division and the Company's Wholesale Division accounted for approximately $127.7 million (27%) and $347.5 million (73%) of the Company's total net sales, respectively. The following paragraphs describe each of these distribution channels.

Steve Madden and Steven Retail Stores

As of December 31, 2006, the Company operated ninety-four (94) Company-owned retail stores (including one Internet store) under the Steve Madden(R) name and two (2) under the Steven(R) name. The Company believes that its retail stores will continue to enhance overall sales, profitability, and its ability to react to changing consumer trends. The stores are also a marketing tool that allows the Company to strengthen brand recognition and to showcase selected items from its full line of branded and licensed products. Furthermore, the retail stores provide the Company with a venue to test and introduce new products and merchandising strategies. Specifically, the Company often tests new designs at its Steve Madden(R) retail stores before scheduling them for mass production and wholesale distribution. In addition to these test marketing benefits, the Company has been able to leverage sales information gathered at Steve Madden(R) retail stores to assist its wholesale customers in order placement and inventory management.

A typical Steve Madden(R) store is approximately 1,400 to 1,600 square feet and is located in a mall or street location that the Company expects will attract the highest concentration of the Company's core demographic, style-conscious customer base. The Steven(R) stores have a more sophisticated design and format styles to appeal to their more mature target audience. In addition to carefully analyzing mall demographics and locations, the Company also sets profitability guidelines for each potential store site. Specifically, the Company targets well trafficked sites at which the demographics fit the Company's consumer profile and seeks new locations where the projected fixed annual rent expense stays within Company guidelines. By setting these guidelines, the Company seeks to identify stores that will contribute to the Company's overall profitability both in the near- and longer-terms.

Department Stores

The Company currently sells to over 9,800 doors of 58 department stores throughout the United States and Canada. The major accounts include Federated Department Stores (Macy's and Bloomingdale's), Lord and Taylor, Nordstrom and Dillard's.

The Company provides merchandising support to its department store customers which includes in-store fixtures and signage, supervision of displays and merchandising of the Company's various product lines. The Company's wholesale merchandising effort includes the creation of in-store concept shops, where a broader collection of the Company's branded products are showcased. These in-store concept shops create an environment that is consistent with the Company's image and enable the retailer to display and sell a greater volume of the Company's products per square foot of retail space. In addition, these in-store concept shops encourage longer term commitment by the retailer to the Company's products and enhance consumer brand awareness.

In addition to merchandising support, the Company's key account executives maintain weekly communications with their accounts to guide them in placing orders and to assist them in managing inventory, assortment and retail sales. The Company leverages its sell-through data gathered at its retail stores to assist department stores in allocating their open-to-buy dollars to the most popular styles in the product line and to phase out styles with weaker sell-throughs, which minimizes markdown exposure at seasons end.

Specialty Stores/Catalog Sales

The Company currently sells to specialty store locations throughout the United States. The Company's major specialty store accounts include Journeys, Mandees, Famous Footwear and DSW. The Company offers its specialty store accounts the same merchandising, sell-through and inventory tracking support offered to its department store accounts. Sales of the Company's products are also made through various catalogs, such as Victoria's Secret.

Internet Sales

The Company operates an Internet website: www.stevemadden.com, where customers can purchase numerous styles of the Company's Steve Madden(R), Steven(R) and Steve Madden Mens footwear and accessory products.

Distribution Agreements

Steve Madden(R) products are available in many countries and territories worldwide via several retail selling and distribution agreements. Under the terms of the retail selling agreements, the distributors and retailers are required to open a minimum number of stores each year and to pay the Company a fee for each pair of footwear purchased, and in many cases, an additional fixed amount per pair or an additional amount based on a percentage of sales. Under the terms of the distribution agreements, the distributor is required to purchase certain minimum amounts of Steve Madden(R) shoes. These agreements, which expire at various times through December 31, 2012, are exclusive in their specific territories which include Canada, Australia, New Zealand, Israel, UAE, Bahrain, Qatar, Oman, Indonesia, Mexico, South Africa, Turkey and several countries in Central and South America.


The fashion footwear industry is highly competitive. The Company competes with specialty shoe companies as well as companies with diversified footwear product lines. Many of these competitors, including Diesel, Kenneth Cole, Nine West, DKNY, Skechers, Nike and Guess, may have greater financial and other resources than the Company. The Company believes effective advertising and marketing, fashionable styling, high quality and value are the most important competitive factors and intends to continue to employ these elements as it develops its products.

Marketing and Sales

The Company has focused on creating an integrated brand building program to establish Steve Madden as a leading designer of fashion footwear for style-conscious young women and men. As a result, the Company developed a national advertising campaign for lifestyle and fashion magazines which was also used in regional marketing programs such as radio advertisements, television commercials, outdoor media, college event sponsorship and live online chat forums. The Company also continues to promote its website (www.stevemadden.com) where customers can purchase Steve Madden(R), Steven(R) and Steve Madden Mens products and interact with the Company.

Management Information Systems (MIS) Operations

Sophisticated information systems are essential to the Company's ability to maintain its competitive position and to support continued growth. The Company operates on a dual AS/400 system which provides system support for all aspects of its business including manufacturing purchase orders, customer purchase orders, order allocations, invoicing, accounts receivable management, real time inventory management, quick response replenishment, point-of-sale support, and financial and management reporting functions. The Company has a PKMS bar coded warehousing system that is integrated with the wholesale system in order to provide accurate inventory positions and quick response size replenishment for its customers. In addition, the Company has installed an EDI system which provides a computer link between the Company and certain wholesale customers that enables both the customer and the Company to monitor purchases, shipments and invoicing. The EDI system also improves the Company's ability to respond to customer inventory requirements on a weekly basis.

Receivables Financing; Line of Credit

On July 1, 2005, the Company entered into a factoring agreement with GMAC Commercial Finance LLC ("GMAC"). The agreement, which has no specific expiration date and can be terminated by either party with sixty (60) days written notice after June 30, 2007, provides the Company with a $25 million credit facility with a $15 million sub-limit on direct borrowings. Under the terms of the agreement, the Company may request advances from the factor up to 80% of aggregate receivables purchased by the factor at an interest rate of two and one-half percent (2.5%) over the 30 day LIBOR. The Company also pays a fee equal to 0.325% of the gross invoice amount of each receivable purchased. Prior to July 1, 2005, the Company had a factoring agreement with Capital Factors, Inc. The Company sells and assigns a substantial portion of its receivables, principally without recourse, to the factor. As of December 31, 2006 and 2005, $260,000 and $555,000 of factored receivables, respectively, were sold by the Company with recourse. GMAC will maintain a lien on all of the Company's receivables and assume the credit risk for all assigned accounts approved by them with certain restrictions.

The Company's Daniel M. Friedman Division has a factoring agreement with Wells Fargo Century. Under the terms of the agreement, the Company is eligible to draw down 85% of its invoiced receivables at an interest rate equal to the prime rate. The Company pays a fee equal to 0.45% of the gross invoice amount of each receivable purchased. Wells Fargo Century will maintain a lien on all of the Daniel M. Friedman's receivables and assume the credit risk for all assigned accounts approved by them with certain restrictions. The expiration date on this agreement is June 30, 2007 with automatic one-year renewals thereafter.

Trademarks and Service Marks

The STEVE MADDEN and/or STEVE MADDEN plus Design trademarks and service marks have been registered in numerous International Classes in the United States (Int'l Cl. 25 for clothing and footwear; Int'l Cl. 18 for leather goods, such as handbags and wallets; Int'l Cl. 9 for eyewear; Int'l Cl. 14 for jewelry; Int'l Cl. 3 for cosmetics and fragrances; Int'l Cl. 20 for picture frames and furniture; Int'l Cl. 16 for paper goods; Int'l Cl. 24 for bedding; and Int'l Cl. 35 for retail store services). The Company also has pending trademark applications in the United States for the mark STEVE MADDEN and/or STEVE MADDEN (design) in numerous international classes (Class 2 for paints, Class 4 for candles, Class 6 for key chains and id bracelets, Class 11 for lamps, Class 14 for jewelry and watches, Class 18 for bags and leather goods, Class 21 for housewares, Class 26 for hair accessories, Class 27 for rugs and carpets, Class 28 for sporting goods, and Class 32 for light beverages).


On February 5, 2007, the Company employed approximately one thousand four hundred and ninety-eight (1,498) employees, of whom approximately four hundred eighty (480) work on a full-time basis and approximately one thousand and eighteen (1,018) work on a part-time basis, most of whom work in the Retail Division. The management of the Company considers relations with its employees to be good.


Jamieson A. Karson has been the Chief Executive Officer of the Company since July 1, 2001 and Chairman of the Board of Directors since July 22, 2004. Mr. Karson was the Vice Chairman of the Board of Directors of the Company from July 1, 2001 until such time that he became the Chairman of the Board of Directors. Mr. Karson has been a director of the Company since January 2, 2001. Prior to joining the Company as Chief Executive Officer, Mr. Karson practiced law for over 17 years. He was a partner in the New York City law firm of Tannenbaum Helpern Syracuse & Hirshtritt LLP from January 1, 1997 through June 30, 2001, where he served on the firm's three person Finance Committee. He was a partner at the law firm of Karson McCormick from February 1992 through December 31, 1996. Prior to that, Mr. Karson was an associate attorney at the law firm of Shea & Gould.

Jeffrey Birnbaum has been a director of the Company since June 2003. Mr. Birnbaum has been the Product Development Manager of Dolphin Footwear Company since August 1982. Dolphin is one of the Company's domestic and foreign suppliers. Mr. Birnbaum graduated from Tulane University in 1982.

Marc S. Cooper has been a director of the Company since July 2001. Mr. Cooper has served as a Managing Director of Peter J. Solomon Company in its Mergers and Acquisitions Department since May 1999. Previously, Mr. Cooper worked at Barington Capital Group from March 1992 to May 1999, where he was a founding member and Vice Chairman overseeing its investment banking operations.

Harold D. Kahn has been a director of the Company since December 2004. Mr. Kahn currently heads HDK Associates, a consulting company that advises financial and investment groups. Mr. Kahn served as the Chief Executive Officer of Macy's East from January 1994 through March 2004. Currently, Mr. Kahn also serves as a Director of The Wet Seal, Inc. and Ronco Corporation.

John L. Madden has been a director of the Company since the Company's inception. From April 1998 through September 2003, Mr. Madden owned a branch office of Tradeway Securities Group, Inc. in Florida. From May 1996 through December 1996, Mr. Madden's consulting company, JLM Consultants, Inc., acted as a branch office of Merit Capital, Inc. for several broker-dealers. From May 1994 to May 1996, Mr. Madden served as Vice President of Investments for GKN Securities, Inc. From August 1993 to April 1994, Mr. Madden was employed by Biltmore Securities, Inc. as Managing Director and registered sales representative. Mr. Madden is t

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