Shares of Steven Madden Ltd. fell Tuesday, after Wedbush analyst Tom Nikic backed away from his yearlong bullish stance one day before the footwear, clothing and accessories company reports quarterly results, saying he expects the company to lower its earnings outlook as the selling environment has deteriorated.
Nikic cut his rating on the stock to neutral, after being at outperform since October 2021. He lowered his price target by 33%, to $29 from $43, with the new target nearly 1% below current prices.
lost 0.5% in morning trading, after rallying 5.6% the past week leading up to results.
“Our move to the sidelines is due to the deteriorating macro environment, difficult compares, high exposure to the challenging U.S. wholesale channel and a highly discretionary category focus that may come under pressure now that consumers have ‘refreshed’ their closets (amidst the COVID reopening in late-2021/early-2022),” Nikic wrote in a note to clients.
Nikic’s concerns come as recent data showed that retail sales fell flat in September, and consumer sentiment remained at historically negative levels, as inflation and rising interest rates crimped spending.
Steven Madden is scheduled to report third-quarter results on Wednesday, before the market opens. Analysts surveyed by FactSet project the company to report adjusted earnings per share of 78 cents, down from 82 cents a year ago, while revenue is expected to rise 1.5% to $533 million.
In the company’s second-quarter report, the company affirmed its 2022 guidance ranges for adjusted EPS of $2.90 to $3.00 and revenue growth of 13% to 16%, after raising guidance in the first-quarter report.
Wedbush’s Nikic said he believes the third-quarter results “should be OK,” but he expects a downward guidance revision, “predominantly in Q4,” and possibly beyond.
“Management is known for being highly transparent, which means that if trends are deteriorating, they’re probably not going to sugarcoat it, which could make for a downbeat conference call,” Nikic wrote.
The stock had run up 12.0% in October, to snap a five-month losing streak in which it plunged 35.0%. The stock had closed at Sept. 30 at a 22-month low. It has shed 36.0% year to date, while the SPDR S&P Retail exchange-traded fund
has dropped 30.5% and the S&P 500 index
has declined 19.3%.
Nikic noted that it took Steven Madden a long time to recover from COVID, as its wholesale partners were slow to restock the company’s core categories. But following “a major restock” in late-2021/early-2022, he said the company now faces “extremely difficult” year-over-year comparisons in the coming quarters, at the same time retailers have been experiencing some slowing demand.
That doesn’t give investors reason to be very optimistic the company (SHOO) will witness much growth in the next six to 12 months.
“We continue to believe that SHOO is a well-run company (with a strong balance sheet), but we don’t think the stock can ‘work’ in the current environment, when sales are decelerating (and likely turning sharply negative in Q4) and there lacks a compelling narrative to get investors excited again,” Nikic wrote.