Steve Madden for sale as shoe industry stumbles
With sales slipping and its stock price dipping, the stylish shoe empire might change hands, reports Fortune's Suzanne Kapner.
(Fortune) -- Shoemaker Steve Madden has put itself up for sale, following a tumble in its stock price as demand for its trendy ballet flats and peep toe pumps has slowed.
The company on Friday said it hired the investment bank Peter J. Solomon to advise it on strategic options, including a possible sale of the company.
The announcement comes one day after a hedge fund called the Clinton Group disclosed a 5 percent stake in Steve Madden (Charts) and urged the company to consider ways to boost its stock price, possibly through a $180 million Dutch tender offer that would augment its existing share repurchase program.
In early morning trading, Steve Madden shares climbed $2.88, or 14.6 percent, to $22.57. The stock remains far off its 52-week-high of $44.70 last seen in October, 2006.
The interest in Steve Madden, which earlier this week slashed its third quarter earnings forecast on slower-than-expected sales, comes amid broader troubles for shoemakers and retailers that could set off a wave of consolidation, analysts said.
After several years of strong growth, fueled by trends such as color, peak-a-boo toes and flats, sales have hit a plateau due to a lack of fresh looks. At the same time, unseasonably warm weather has caused shoppers to delay buying boots and other fall footwear. DSW (Charts) on Thursday kicked off a four-day boot sale, weeks earlier than usual.
"Everything that's in stores now was available last season," said Heather Boksen of Sidoti & Company. "The 'I must go out and buy it now' factor is not there."
After posting a 7 percent sales gain last year to $44.5 billion, U.S. shoe sales have slowed to a crawl, inching up 3 percent in the 12 months that ended in August, the most recent data available, according to the NPD Group.
And in fact the picture may be more grim than those numbers indicate, since sales have continued to slide over the past two months, analysts said. Hardest hit are women's dress shoes, which saw a 13 percent year-over-year decline. Also on the skids are athletic shoes, which dipped 1.4 percent.
As sales have slumped, so to have the stock prices in the footwear sector. John Shanley of Susquehanna International Group estimates that the shoe retailers he follows have seen a collective 25 percent drop in their shares so far this year, making many of them cheap compared with historical levels.
The bloodbath is laying the groundwork for opportunistic suitors. Steve Madden said it decided to explore a sale after receiving interest from unidentified third parties. One likely acquirer is the $2.5 billion Brown Shoe Company (Charts), which operates the Famous Footwear and Naturalizer stores.
Brown has openly said it is on the hunt for acquisitions, and analysts said Steve Madden would make a good fit. Brown mainly sells to men, women and children through its Famous Footwear retail chain. One big hole in its portfolio is the younger, trendy women who make up the core of Steve Madden's customers.
If the shakeout continues, other shoe companies could find themselves on the block. Skechers (Charts), the Los Angeles-based fashion sneaker company, has long been rumored to be the subject of buyout interest, but it remains unclear whether the controlling Greenberg family wants to sell.
Meanwhile, speculation continues to swirl around Nine West, which is struggling to turn its business around, and whose parent, the Jones Apparel Group (Charts, Fortune 500), is in the process of divesting its under-performing brands.
That's not to say the industry is about to be rolled up. The very factors that make these companies ripe for consolidation also provide hurdles to any deal. It's not just the shares of target companies that are falling, but those of acquirers too, giving them less currency to do deals.
And with the credit markets drying up, debt becomes more expensive, a factor that is likely to hurt private equity firms, which rely on leverage to make their deals pay outsized returns. Those that stand the best chance of acquiring are companies, like Brown Shoe, with relatively little debt and lots of cash on their books.
Even deals in which the acquirer secures financing without having to put up much of its own money can turn sour in this climate. The Finish Line (Charts), the second largest athletic shoe retailer behind the Foot Locker (Charts, Fortune 500), agreed in June to buy Genesco (Charts), which owns the Johnston & Murphy and Journeys brands for $1.5 billion. The Finish Line was to put up just $11 million of its own money and borrow the rest from UBS.
But as Genesco's business deteriorated, along with the rest of the industry, Finish Line and UBS dragged their feet in closing the deal, claiming that Genesco's falling sales constituted a material adverse change in its business. Genesco has since filed a lawsuit in an attempt to force Finish Line to make good on the agreement, and Finish Line has filed a countersuit. The matter is now before a Nashville judge.