SHOO Steven Madden Ltd.

Management Discussion

• Net sales for the three months ended September 30, 2019 increased 8.5% to $497,308 compared to $458,482 in the same period of last year, with growth in the Wholesale Footwear, Wholesale Accessories/Apparel and Retail segments. Gross margin increased to 38.4% from 38.2% in the prior year period. The increase of 20 basis points in gross margin in the current period was driven by increases in gross margin primarily in our Retail and Wholesale Footwear segments, as well as higher margins in our BB Dakota and GREATS acquisitions. Operating expenses increased in the third quarter of this year to $125,147 from $110,007 in the third quarter of last year. In the third quarter of 2019 and 2018 operating expenses included charges of $4,209 and $406, respectively. (See "Non-GAAP Financial Measures" above for a description of the charges.) Excluding these items, operating expenses as a percentage of sales were 24.3% for the third quarter of 2019 compared to 23.9% in the third quarter of 2018. Excluding these items, the increase in operating expenses primarily comprised (i) higher payroll and related expenses, (ii) higher advertising and promotions, and (iii) higher warehouse and distribution expenses, as well as expenses related in the addition of BB Dakota and GREATS. Commission and licensing fee income for the third quarter of 2019 decreased to $2,157 compared to $4,994 in the third quarter of 2018. The effective tax rate for the third quarter of 2019 increased to 23.0% compared to 20.8% in the third quarter of last year. The increase in effective tax rate is primarily due to a decrease in the amount of stock compensation benefit taken in 2019, an increase in 2019 pre-tax income in jurisdictions with higher tax rates, and a partially offsetting decrease in the state taxes incurred. Net income attributable to Steven Madden, Ltd. for the third quarter of 2019 decreased to $52,463 compared to net income for the third quarter of 2018 of $55,563. Net income attributable to Steven Madden, Ltd. for the third quarter of 2019 and 2018 included after-tax charges of $3,536 and $304, respectively. In 2019, these charges included a (i) $2,345 after-tax expense related to early lease termination charges and impairment of lease right-of-use assets, (ii) $808 after-tax expense in connection with the acquisitions of GREATS and BB Dakota brands, and (iii) $383 after-tax expense in connection with deferred tax adjustments and in 2018, the charge included a $304 after-tax expense in connection with the integration of the Schwartz & Benjamin acquisition and the related restructuring. Excluding these charges, net income attributable to Steven Madden, Ltd. for the third quarter of 2019 and 2018 was $55,999 and $55,867, respectively.