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Citi Upgrades Steven Madden's shares after Schwartz & Benjamin´s acquisition

By Angela Gonzalez-Rodriguez

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Citi analysts have upgraded their rating on Steven Madden's stock (SHOO) to 'buy'soon after the footwear and accessories brand announced the acquisition of family-run footwear business Schwartz & Benjamin Inc.

The shoe designer’s company has not disclosed the price of the deal, although it confirmed the sale was completed for cash at closing along with an earn-out provision based on financial performance through until 31 January 2023.

On the back of the news, Citi analyst Corinna Van der Ghinst explained in a note to market Tuesdays the reasons for the upgrade: "We are upgrading SHOO to Buy from Neutral based on:

1) A strong setup going into 2017, driven by a stronger fashion cycle & product momentum, clean inventories, and management execution. As retailers become more reliant on at-once orders, we view SHOO’s faster-fashion, test & react model as an even bigger competitive advantage than it was in the past;

2) Valuation is more attractive with the stock’s ~15 percent pullback since early December, with 19 percent current upside to our 40 dollars target price (unchanged), and we believe shares better incorporate macro risk & increased retailer inventory caution. We maintained our estimates of +MSD topline and +HSD EPS growth in FY17-18E, ex-acquisitions;

3) Potential upside to our FY18 EPS est. of 2.40 dollars from today’s acquisition announcement; and

4) SHOO continues to expand both international markets (Asia joint venture launching ~fall ’17) & US (Amazon, outlet)."

Edward Rosenfeld, chairman and chief executive officer at Steve Madden said regarding the deal that they “see opportunity to expand the business by combining Schwartz & Benjamin’s strengths - which include premier execution in the design and sourcing of high-quality footwear as well as a strong portfolio of brand partners - with our proven business model and infrastructure.”

As far as the running of Schwartz & Benjamin goes, Danny explained his brand will continue to operate as a stand-alone company in regards to its employees and management.

In previous acquisitions conducted in the past couple of years, Steve Madden group snapped up other labels such as Brian Atwood, Blondo and Dolce Vita.

Steve Madden