20% Gain Possible For Steven Madden Stock Post-Covid

SHOO: Steven Madden logo
SHOO
Steven Madden

Comparing the trend in Steve Madden’s stock (NASDAQ: SHOO), a company designing and retailing fashion footwear, handbags and accessories, over recent months with its trajectory during and after the Great Recession of 2008, we believe that the stock could likely gain 20% to around the level of $26, once fears surrounding the coronavirus outbreak are put to rest. Covid-19 negatively impacted non-essential retailers. Steve Madden was no exception and saw persistent softness in its wholesale business in its footwear and accessories segments, due to massive order cancellations as a result of the pandemic. The company’s retail business was also hurt by the closure of the vast majority of its bricks-and-mortar stores for most of the Q2.

A detailed comparison of Steve Madden’s performance vis-à-vis the S&P 500 is available in our interactive dashboard analysis, 2007-08 vs. 2020 Crisis Comparison: How Did Steve Madden Stock Fare Compare With S&P 500?

The World Health Organization (WHO) declared a global health emergency at the end of January in light of the coronavirus spread. The rally in the equity market continued till February 19 with the S&P 500 reaching a record high, but the trend reversed sharply over the following weeks. SHOO stock lost 42% of its value (vs. about a 34% decline in the S&P 500) between February 19 and March 23. A bulk of the decline came after March 6th, when an increasing number of Coronavirus cases outside China fueled concerns of a global economic slowdown. The multi-billion-dollar stimulus package announced by the U.S. government hasn’t helped the stock price recover much over recent weeks (-1% vs. about 50% gain in the S&P 500) and it stands at the current level of close to $21.

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SHOO Stock Fell Because The Situation On The Ground Had Changed

In the recent Q2 (ended June), Steve Madden’s consolidated revenue declined 68% year-over-year (y-o-y) to $143 million. It also reported a loss of $0.19 per share compared to $0.47 per share in Q2 2019. However, the company’s e-commerce business remained operational throughout and has been a bright spot with an 88% increase in revenues for the quarter (compared to a 58% revenue increase in last year’s second quarter).

In the upcoming Q3, the company expects to see a continued decline in revenues. Its Wholesale Footwear revenue is expected to decline approximately 35% and Wholesale Accessories and Apparel revenue to be down approximately 40% versus last year.  Also, its retail segment sales are expected to be down approximately 25% in Q3.

Now that more people are homebound, there is a sense of downturn in terms of dress wear shoes. In fact, with fewer workers commuting into the office, consumers will likely continue to seek out comfortable footwear styles. As a result, Steve Madden is shifting its focus to more casual styles like flat sandals and sneakers. The company’s bumpy ride is likely to continue for a while. The fact of the matter is there has to be a renewed desire in people to dress up again for the footwear sales to pick up similar to pre-Covid levels.

SHOO Stock Fared Better During The 2008 Downturn

But SHOO stock performed better during the 2008 downturn. SHOO’s stock declined from levels of around $2.40 in October 2007 (the pre-crisis peak) to roughly $2 in March 2009 (as the markets bottomed out) – implying that the stock lost only 15% of its value from its approximate pre-crisis peak. This marked a much lower drop than the broader S&P, which fell by about 51%.

However, SHOO’s stock recovered post the 2008 crisis, to levels of about $5 in early 2010, rising by 154% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period.

Will SHOO Stock Recover Similarly From The Current Crisis?

Steve Madden’s stock fell roughly 42% from the market peak on February 19 to the low on March 23, compared to a 15% decline seen in its stock price during the 2008 recession. Also, since it hasn’t recovered over recent weeks – we believe it can potentially recover by another 20% to get close to $26 once economic conditions begin to show signs of improving. This marks a partial recovery to around the $37 level SHOO stock was at before the coronavirus outbreak gained global momentum.

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That said, the actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard forecasting U.S. Covid-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture further. A complete set of coronavirus impact and timing analyses is available here.

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