SHOO Steven Madden Ltd.

Management Discussion

• Net sales for the three months ended June 30, 2019 increased 12.4% to $444,974 compared to $395,753 in the same period of last year, with growth in the Wholesale Footwear, Wholesale Accessories and Retail segments. Gross margin slightly decreased to 37.2% from 37.3% in the prior year period. The decrease of 10 basis points in gross margin in the current period was driven by decreases in gross margin primarily in our Wholesale Accessories and Retail segments. Operating expenses increased in the second quarter of this year to $119,809 from $108,434 in the second quarter of last year. In the second quarter of 2019 and 2018 operating expenses included net charges of $544 and $2,372, respectively. (See "Non-GAAP Financial Measures" above for a description of the net benefit and charges.) Excluding these items, operating expenses as a percentage of sales were 26.8% for the second quarter of 2019 compared to 26.8% in the second quarter of 2018. Excluding these items, the increase in operating expenses primarily comprised of (i) higher payroll and related expenses, (ii) higher warehouse and distribution expenses, (iii) higher advertising and promotions, and (iv) higher legal charges. Commission and licensing fee income for the second quarter of 2019 increased to $3,147 compared to $2,244 in the second quarter of 2018. The second quarter 2019 Commission and licensing fee income included a $143 recovery associated with the Payless ShoeSource bankruptcy. (See "Non-GAAP Financial Measures" above.) The effective tax rate for the second quarter of 2019 decreased to 21.3% compared to 23.9% in the second quarter of last year. The decrease in effective tax rate is primarily due to a decrease in the amount of GILTI tax incurred, a decrease in the state taxes incurred and a partially offsetting increase in 2019 pre-tax income in jurisdictions with high tax rates. Net income attributable to Steven Madden, Ltd. for the second quarter of 2019 increased to $36,572 compared to net income for the second quarter of 2018 of $32,410. Net income attributable to Steven Madden, Ltd. for the second quarter of 2019 increased to $39,536 (excluding (i) $1,727 after-tax benefit, net of bad debt expense associated with the Payless ShoeSource bankruptcy, (ii) $1,156 after-tax expense in connection with a provision for early lease termination charges, (iii) $501 after-tax expense associated with a divisional headquarters relocation, and (iv) $3,033 after-tax impact of an impairment of the Brian Atwood trademark), as compared to $35,185 (excluding (i) $1,028 tax expense related to an impairment to the preferred interest investment in Brian Atwood Italia Holding, LLC, (ii) $833 after-tax expense in connection with the integration of the Schwartz & Benjamin acquisition and the related restructuring, and (iii) $914 after-tax impact of an expense associated with a warehouse consolidation) for the same period last year.