# Steven Madden, LTD.: Form 10-Q for the period ended Mar 31, 2023

- Company: [Steven Madden, LTD.](/companies/shoo.md) (CIK 913241)
- Form: 10-Q
- Filed: 2023-05-10
- Accepted by EDGAR: May 10, 2023, 16:30 ET
- Period: 2023-03-31
- Accession: 0001628280-23-017089
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/913241/000162828023017089/shoo-20230331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/913241/000162828023017089/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-01-01 to 2023-03-31 | $461.7m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-01-01 to 2023-03-31 | $268.7m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-01-01 to 2023-03-31 | $195.1m | us-gaap:GrossProfit |
| Operating income | 3 months, 2023-01-01 to 2023-03-31 | $46.5m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-01-01 to 2023-03-31 | $11.7m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-01-01 to 2023-03-31 | $36.8m | us-gaap:ProfitLoss |
| Diluted EPS | 3 months, 2023-01-01 to 2023-03-31 | $0.48 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-01-01 to 2023-03-31 | $0.49 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-01-01 to 2023-03-31 | 75,855,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2023-01-01 to 2023-03-31 | −$13.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-01-01 to 2023-03-31 | $3.8m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2023-01-01 to 2023-03-31 | $16.0m | us-gaap:PaymentsOfDividends |
| Share repurchases | 3 months, 2023-01-01 to 2023-03-31 | $38.5m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Current assets | at 2023-03-31 | $768.0m | us-gaap:AssetsCurrent |
| Total assets | at 2023-03-31 | $1.21bn | us-gaap:Assets |
| Current liabilities | at 2023-03-31 | $257.2m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-03-31 | $367.4m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-03-31 | $821.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 27,826 characters.

The following discussion of our financial condition and results of operations for the three months ended March 31, 2023 should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q.

All references in this Quarterly Report to “we,” “our,” “us” and the “Company” refer to Steven Madden, Ltd. and its subsidiaries unless the context indicates otherwise.

This Quarterly Report contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Examples of forward-looking statements include, among others, statements regarding revenue and earnings guidance, plans, strategies, objectives, expectations and intentions. You can identify forward-looking statements by words such as: “may,” “will,” “expect,” “believe,” “should,” “anticipate,” “project,” “predict,” “plan,” “intend,” or “estimate,” and similar expressions or the negative of these expressions. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they represent our current beliefs, expectations and assumptions regarding anticipated events and trends affecting our business and industry based on information available as of the time such statements are made. We caution investors that such forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which may be outside of our control. Our actual results and financial condition may differ materially from those indicated in these forward-looking statements. As such, investors should not rely upon them. Important risk factors include:

- our ability to navigate shifting macro-economic environments including but not limited to inflation and the potential for recessionary conditions;
- our ability to accurately anticipate fashion trends and promptly respond to consumer demand;
- our ability to compete effectively in a highly competitive market;
- our ability to adapt our business model to rapid changes in the retail industry;
- supply chain disruptions to product delivery systems and logistics, and our ability to properly manage inventory;
- our reliance on independent manufacturers to produce and deliver products in a timely manner, especially when faced with adversities such as work stoppages, transportation delays, public health emergencies, social unrest, changes in local economic conditions, and political upheavals as well as their ability to meet our quality standards;
- our dependence on the retention and hiring of key personnel;
- our ability to successfully implement growth strategies;
- changes in trade policies and tariffs imposed by the United States government and the governments of other nations in which we manufacture and sell products;
- our ability to adequately protect our trademarks and other intellectual property rights;
- our ability to maintain adequate liquidity when negatively impacted by unforeseen events such as an epidemic or a pandemic, which may cause disruption to our business operations;
- legal, regulatory, political and economic risks that may affect our sales in international markets;
- changes in U.S. and foreign tax laws that could have an adverse effect on our financial results;
- additional tax liabilities resulting from audits by various taxing authorities;
- cybersecurity risks and costs of defending against, mitigating, and responding to data security threats and breaches impacting the Company;
- our ability to achieve operating results that are consistent with prior financial guidance; and
- other risks and uncertainties indicated from time to time in our filings with the Securities and Exchange Commission.

These risks and uncertainties, along with the risk factors discussed under Part II, Item 1A “Risk Factors” in this Quarterly Report on Form 10-Q and, in Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2022, should be considered in evaluating any forward-looking statements contained in this report. We do not undertake any obligation to publicly update any forward-looking statement, including without limitation, any guidance regarding revenue or earnings, whether as a result of new information, future developments or otherwise.

### Overview:

#### ($ in thousands, except for retail sales data per square foot, earnings per share and per share data)

Steven Madden, Ltd. and its subsidiaries design, source, and market fashion-forward branded and private label footwear, accessories and apparel for women, men, and children. We distribute our products in the wholesale channel through department stores, mass merchants, off-price retailers, shoe chains, online retailers, national chains, specialty retailers, independent stores, and clubs throughout the United States, Canada, Mexico, and Europe, and other international markets through our joint ventures in Israel, South Africa, China, Taiwan, Malaysia, and the Middle East along with special distribution arrangements in certain European countries, North Africa, South and Central America, Australia, and various countries in Asia. In addition, our products are distributed through our direct-to-consumer channel within the United States, Canada, Mexico, and Europe, and our joint ventures in Israel, South Africa, China, Taiwan, and the Middle East.

Our product lines include a broad range of contemporary styles designed to establish or capitalize on market trends, complemented by core product offerings. We have established a reputation for design creativity and our ability to offer quality, trend-right products at accessible price points, delivered in an efficient manner and time frame.

We manage our operations through our operating divisions, which are presented as the following reportable segments: Wholesale Footwear, Wholesale Accessories/Apparel, Direct-to-Consumer, and Licensing. As of January 2023, the Company no longer serves as a buying agent for any of its customers, and as a result no longer reports under the First Cost segment. This change is not considered to have a material or meaningful impact on the Company's operations. Our Wholesale Footwear segment designs, sources, and markets our brands and sells our products to department stores, mass merchants, off-price retailers, shoe chains, online retailers, national chains, specialty retailers, independent stores, and clubs throughout the United States, Canada, Mexico, and Europe, and through our joint ventures and international distributor network. Our Wholesale Accessories/Apparel segment designs, sources, and markets our brands and sells our products to department stores, mass merchants, off-price retailers, online retailers, specialty retailers, independent stores and clubs throughout the United States, Canada, Mexico, and Europe and through our joint ventures and international distributor network. Our Direct-to-Consumer segment, which was referred to as the Retail segment in previous filings, consists of Steve Madden® and Dolce Vita® full-price retail stores, Steve Madden® outlet stores, and our directly-operated digital e-commerce websites. Our retail stores are located in regional malls and shopping centers, as well as high streets in major cities across the United States, Canada, Mexico, Israel, South Africa, Taiwan, China, and the Middle East. Our Licensing segment is engaged in the licensing of the Steve Madden® and Betsey Johnson® trademarks for use in the sale of select apparel, accessory, and home categories as well as various other non-core products. Corporate does not constitute a reportable segment and includes costs not directly attributable to the segments. These costs are primarily related to expenses associated with corporate executives, corporate finance, legal, human resources, information technology, cyber security, corporate social responsibility, and other shared services.

### Executive Summary

### Key Highlights

Total revenue for the quarter ended March 31, 2023 decreased 17.1% to $463,834 compared to $559,734 in the same period of last year. Net income attributable to Steven Madden, Ltd. was $36,730 in the first quarter of 2023 compared to $74,513 in the same period of last year. Our effective tax rate for the first quarter of 2023 increased to 24.2% compared to 23.8% in the first quarter of last year. Diluted earnings per share was $0.48 per share on 75,855 diluted weighted average shares outstanding compared to diluted earnings of $0.94 per share on 79,663 diluted weighted average shares outstanding in the first quarter of last year.

Our inventory turnover (calculated on a trailing four quarter average) for the quarters ended March 31, 2023 and 2022 was 4.9 times and 5.9 times, respectively. Our total Company accounts receivable average collection days decreased to 64 days in the first quarter of 2023 compared to 71 days in the first quarter of 2022. As of March 31, 2023, we had $223,719 in cash, cash equivalents and short-term investments, no debt and total stockholders’ equity of $837,698. Working capital was $510,791 as of March 31, 2023, compared to $522,843 as of March 31, 2022.

The following tables set forth information on operations for the periods indicated:

### Selected Financial Information

*(in thousands, except for number of stores)*

| CONSOLIDATED: | Three Months Ended March 31, 2023 |  | 2022 |  |
| --- | ---: | ---: | ---: | ---: |
| Net sales | **$461,737** | **99.5%** | $557,344 | 99.6% |
| Commission and licensing income | **2,097** | **0.5%** | 2,390 | 0.4% |
| Total revenue | **463,834** | **100.0%** | 559,734 | 100.0% |
| Cost of sales (exclusive of depreciation and amortization) | **268,742** | **57.9%** | 331,836 | 59.3% |
| Gross profit | **195,092** | **42.1%** | 227,898 | 40.7% |
| Operating expenses | **148,581** | **32.0%** | 130,002 | 23.2% |
| Income from operations | **46,511** | **10.0%** | 97,896 | 17.5% |
| Interest and other income – net | **2,020** | **0.4%** | 57 | —% |
| Income before provision for income taxes | **$48,531** | **10.5%** | $97,953 | 17.5% |
| Net income attributable to Steven Madden, Ltd. | **$36,730** | **7.9%** | $74,513 | 13.3% |
| **BY SEGMENT:** |  |  |  |  |
| **WHOLESALE FOOTWEAR SEGMENT:** |  |  |  |  |
| Total Revenue | **$282,321** | **100.0%** | $346,715 | 100.0% |
| Cost of sales (exclusive of depreciation and amortization) | **174,799** | **61.9%** | 212,641 | 61.3% |
| Gross profit | **107,522** | **38.1%** | 134,074 | 38.7% |
| Operating expenses | **45,466** | **16.1%** | 39,983 | 11.5% |
| Income from operations | **$62,056** | **22.0%** | $94,091 | 27.1% |
| **WHOLESALE ACCESSORIES/APPAREL SEGMENT:** |  |  |  |  |
| Total Revenue | **$79,816** | **100.0%** | $102,283 | 100.0% |
| Cost of sales (exclusive of depreciation and amortization) | **53,302** | **66.8%** | 78,369 | 76.6% |
| Gross profit | **26,514** | **33.2%** | 23,914 | 23.4% |
| Operating expenses | **17,076** | **21.4%** | 12,543 | 12.3% |
| Income from operations | **$9,438** | **11.8%** | $11,371 | 11.1% |
| **DIRECT-TO-CONSUMER SEGMENT:** |  |  |  |  |
| Total Revenue | **$99,600** | **100.0%** | $108,346 | 100.0% |
| Cost of sales (exclusive of depreciation and amortization) | **40,641** | **40.8%** | 40,826 | 37.7% |
| Gross profit | **58,959** | **59.2%** | 67,520 | 62.3% |
| Operating expenses | **63,206** | **63.5%** | 55,209 | 51.0% |
| (Loss)/income from operations | **$(4,247)** | **(4.3%)** | $12,311 | 11.4% |
| Number of stores | **240** |  | 219 |  |
| **FIRST COST SEGMENT:** |  |  |  |  |
| Commission income | **$—** | **—%** | $837 | 100.0% |
| Gross profit | **—** | **—%** | 837 | 100.0% |
| Operating expenses | **—** | **—%** | 242 | 28.9% |
| Income from operations | **$—** | **—%** | $595 | 71.1% |
| **LICENSING SEGMENT:** |  |  |  |  |
| Licensing income | **$2,097** | **100.0%** | $1,553 | 100.0% |
| Gross profit | **2,097** | **100.0%** | 1,553 | 100.0% |
| Operating expenses | **279** | **13.3%** | 518 | 33.4% |
| Income from operations | **$1,818** | **86.7%** | $1,035 | 66.6% |
| **Corporate:** |  |  |  |  |
| Operating expenses | **$(22,554)** | **—%** | $(21,507) | —% |
| Loss from operations | **$(22,554)** | **—%** | $(21,507) | —% |

21

### RESULTS OF OPERATIONS

#### ($ in thousands, except for number of stores)

### Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

### Consolidated:

Total revenue for the three months ended March 31, 2023 decreased 17.1% to $463,834 compared to $559,734 in the same period of last year, due to decreases in the Wholesale business and to a lesser extent, a decline in the Direct-to-Consumer business. Gross profit was $195,092, or 42.1% of total revenue, as compared to $227,898, or 40.7% of total revenue, in the prior-year period. The increase in gross profit as a percentage of total revenue was primarily driven by gross margin expansion in the Wholesale Accessories/Apparel segment and a higher penetration of our Direct-to-Consumer business. Operating expenses in the first quarter of 2023 were $148,581, or 32.0% of total revenue, as compared to $130,002, or 23.2% of total revenue, in the first quarter of the prior year. The increase in operating expenses as a percentage of total revenue was primarily attributable to deleveraging of expenses on a lower revenue base, a benefit in the valuation of our contingent consideration in the prior year period, as well as an increase in payroll related expenses, advertising expenses, and occupancy costs. Income from operations for the three months ended March 31, 2023 decreased to $46,511, or 10.0% of total revenue, as compared to $97,896, or 17.5% of total revenue, in the prior-year period. The effective tax rate in the first quarter of 2023 was 24.2% compared to 23.8% in the first quarter of last year. The difference in effective tax rate was primarily due to the expected jurisdictional mix of profit and losses from each period. Net income attributable to Steven Madden, Ltd. for the first quarter of 2023 was $36,730 compared to $74,513 in the first quarter of 2022.

### Wholesale Footwear Segment:

Revenue from the Wholesale Footwear segment in the first quarter of 2023 accounted for $282,321, or 60.9% of total revenue, as compared to $346,715, or 61.9% of total revenue, in the first quarter of 2022. Wholesale Footwear revenue decreased 18.6% compared to the first quarter of 2022, when Wholesale Footwear revenue increased 25.4% versus pre-COVID first quarter of 2019. Gross profit was $107,522, or 38.1% of Wholesale Footwear revenue, in the first quarter of 2023 as compared to $134,074, or 38.7% of Wholesale Footwear revenue, in the first quarter of 2022. The decrease in gross profit as a percentage of revenue was primarily due to higher markdown allowances partially offset by lower freight expenses and a lower penetration of our private label business. Operating expenses in the first quarter of 2023 were $45,466, or 16.1% of Wholesale Footwear revenue, as compared to $39,983, or 11.5% of Wholesale Footwear revenue, in the first quarter of the prior year. The increase in operating expenses as a percentage of Wholesale Footwear revenue was primarily attributable to deleveraging expenses on a lower revenue base, and an increase in payroll related expenses. Income from operations decreased to $62,056, or 22.0% of Wholesale Footwear revenue, in the first quarter of 2023 as compared to $94,091, or 27.1% of Wholesale Footwear revenue in the first quarter of the prior year.

### Wholesale Accessories/Apparel Segment:

Revenue from the Wholesale Accessories/Apparel segment in the first quarter of 2023 accounted for $79,816, or 17.2% of total revenue, as compared to $102,283, or 18.3% of total revenue, in the first quarter of 2022. Wholesale Accessories/Apparel revenue decreased 22.0% compared to the first quarter of 2022, when Wholesale Accessories/Apparel revenue increased 43.0% versus pre-COVID first quarter of 2019. Gross profit was $26,514, or 33.2% of Wholesale Accessories/Apparel revenue, in the first quarter of 2023 as compared to $23,914, or 23.4% of Wholesale Accessories/Apparel revenue, in the first quarter of the prior year. The increase in gross profit as a percentage of revenue was due to a reduction in markdown allowances, lower freight expenses, a lower penetration of our private label business, and improved production costs. Operating expenses in the first quarter of 2023 were $17,076, or 21.4% of Wholesale Accessories/Apparel revenue, as compared to $12,543, or 12.3% of Wholesale Accessories/Apparel revenue, in the first quarter of the prior year. The increase in operating expenses as a percentage of Wholesale Accessories/Apparel revenue was primarily attributable to deleveraging of expenses on a lower revenue base and a benefit in the valuation of our contingent consideration in the prior year period. Income from operations for the Wholesale Accessories/Apparel segment in the first quarter of 2023 was $9,438, or 11.8% of Wholesale Accessories/Apparel revenue, as compared to $11,371, or 11.1% of Wholesale Accessories/Apparel revenue in the first quarter of the prior year.

### Direct-to-Consumer Segment:

In the first quarter of 2023, revenue from the Direct-to-Consumer segment accounted for $99,600, or 21.5% of total revenue, as compared to $108,346, or 19.4% of total revenue, in the first quarter of 2022. Revenue decreased 8.1% compared to the prior year period, driven by declines in both of our brick-and-mortar and e-commerce businesses. As of March 31, 2023, we operated 235 brick-and-mortar stores and five e-commerce websites compared to 213 brick-and-mortar stores and six e-commerce websites as of March 31, 2022. In addition, we operated 21 concessions in international markets as of March 31, 2023 compared to 19 concessions in international markets as of March 31, 2022. Gross profit in the first quarter of 2023 was $58,959, or 59.2% of Direct-to-Consumer revenue, compared to $67,520, or 62.3% of Direct-to-Consumer revenue, in the first quarter of 2022. The decrease in gross profit as a percentage of revenue was primarily due to an increase in promotional activity. Operating expenses in the first quarter of 2023 were $63,206, or 63.5% of Direct-to-Consumer revenue, as compared to $55,209, or 51.0% of Direct-to-Consumer revenue, in the first quarter of 2022. The increase in operating expenses as a percentage of revenue was primarily attributable to deleveraging of expenses on a lower revenue base, an increase in payroll related expenses, occupancy costs and our continued investment in digital marketing. In the first quarter of 2023, loss from operations for the Direct-to-Consumer segment was $4,247, or (4.3)% of Direct-to-Consumer revenue, as compared to income from operations of $12,311, or 11.4% of Direct-to-Consumer revenue in the first quarter of the prior year.

### First Cost Segment:

As of January 2023, the Company no longer serves as a buying agent for any of its customers, and as a result no longer reports under the First Cost segment. This change is not considered to have a material or meaningful impact on the Company's operations. In the first quarter of 2022, commission income generated by the First Cost segment was $837, operating expenses were $242, and income from operations was $595.

### Licensing Segment:

Royalty income generated by the Licensing segment accounted for $2,097, or 0.5% of total revenue, in the first quarter of 2023 compared to $1,553, or 0.3% of total revenue, in the first quarter of 2022. Royalty income increased 35.0% compared to the prior year period driven by an increase in Steve Madden licensed businesses. Operating expenses were $279 in the current period compared to $518 in the same period of last year. In the first quarter of 2023, income from operations for the Licensing segment was $1,818 as compared to $1,035 in the same period last year.

### Corporate:

Corporate does not constitute a reportable segment and includes costs not directly attributable to the segments. These costs are primarily related to expenses associated with corporate executives, corporate finance, corporate social responsibility, legal, human resources, information technology, cyber security, and other shared services. Corporate operating expenses were $22,554 or 4.9% of total revenue in the first quarter of 2023 as compared to $21,507, or 3.8% of total revenue, in the first quarter of 2022.

### Liquidity and Capital Resources

Our primary sources of liquidity are cash flows from operations, cash, cash equivalents and short-term investments. Cash, cash equivalents and short-term investments totaled $223,719 and $289,798 at March 31, 2023 and December 31, 2022, respectively. Of the total cash, cash equivalents and short-term investments as of March 31, 2023, $129,007, or approximately 58%, was held in our foreign subsidiaries, and of the total cash, cash equivalents and short-term investments on December 31, 2022, $133,729, or approximately 46%, was held in our foreign subsidiaries.

On July 22, 2020, we entered into a $150,000, five-year, asset-based revolving credit facility with various lenders and Citizens Bank, N.A. On March 25, 2022, we entered into an amendment to the revolving credit facility, which replaced the London Interbank Offering Rate (“LIBOR”) with the Bloomberg Short-Term Bank Yield Index (“BSBY”) as the interest rate benchmark, among other changes.

As of March 31, 2023, we had working capital of $510,791, cash and cash equivalents of $209,979, short-term investments of $13,740, no cash borrowing and $504 in letters of credit outstanding unrelated to the Credit Agreement.

We believe that based on our current financial position and available cash, cash equivalents, and short-term investments, we will meet all our financial commitments and operating needs for at least the next twelve months. In addition, our $150,000 asset-based revolving credit facility provides us with additional liquidity and flexibility on a long-term basis.

### Cash Flows

A summary of our cash provided by and used in operating, investing, and financing activities was as follows:

### Operating Activities

Cash used in operations was $13,275 for the three months ended March 31, 2023 compared to $19,446 in the same period of last year. The decrease in cash used in operations was primarily driven by less cash used in accounts payable and accrued expenses and inventory partially offset by unfavorable changes in net income, receivables, and prepaid expenses.

### Investing Activities

Cash used in investing activities was $2,426 for the three months ended March 31, 2023, which consisted of purchases of $6,722 in short-term investments offset by cash received of $8,087 from the maturities and sales of short-term investments. We also made capital expenditures of $3,791, principally for leasehold improvements to office space, new stores and systems enhancements.

### Financing Activities

During the three months ended March 31, 2023, net cash used in financing activities was $49,740, which primarily consisted of share repurchases of $38,451 and cash dividends paid of $16,039.

### Contractual Obligations

Our contractual obligations as of March 31, 2023 were as follows:

| Contractual Obligations | Payment due by period Total | Remainder of 2023 | 2024-2025 | 2026-2027 | 2028 and after |
| --- | ---: | ---: | ---: | ---: | ---: |
| Operating lease obligations | $144,353 | $30,113 | $62,933 | $35,449 | $15,858 |
| Purchase obligations | 287,909 | 287,810 | 99 | — | — |
| Future minimum royalty and advertising payments | 21,625 | 3,625 | 12,000 | 6,000 | — |
| Transition tax | 11,721 | 2,930 | 8,791 | — | — |
| **Total** | **$465,608** | **$324,478** | **$83,823** | **$41,449** | **$15,858** |

Substantially all our products are produced by independent manufacturers at overseas locations, the majority of which are located in China, with a growing percentage located in Cambodia, Mexico, Brazil and some European nations. We have not entered into any long-term manufacturing or supply contracts with any of these foreign manufacturers. We believe that a sufficient number of alternative sources exist outside of the United States for the manufacture of our products. Purchases are made primarily in United States dollars.

We have employment agreements with our Creative and Design Chief, Steven Madden, and certain executive officers, which provide for the payment of compensation aggregating to approximately $7,446 in the remainder of 2023, $8,998 in 2024, and $7,851 in 2025. In addition, some of these employment agreements provide for discretionary bonuses and some provide for incentive compensation based on various performance criteria as well as other benefits, including stock-related compensation.

Transition tax of $11,721 was the result of the Tax Cuts and Jobs Act of 2017 (the "Tax Act"). Excluded from the contractual obligations table above are long-term taxes payable of $1,145 as of March 31, 2023 primarily related to uncertain tax positions, for which we are unable to make a reasonably reliable estimate of the timing of payments in individual years beyond one year due to uncertainties in the timing of tax audit outcomes.

### Dividends

On May 8, 2023, our Board of Directors approved a quarterly cash dividend. The quarterly dividend of $0.21 per share is payable on June 23, 2023 to stockholders of record as of the close of business on June 12, 2023.

Future quarterly cash dividend payments are subject to the discretion of our Board of Directors and contingent upon future earnings, our financial condition, capital requirements, general business conditions, and other factors. Therefore, we can give no assurance that cash dividends will be paid to holders of our common stock in the future.

### Inflation

Actual results could be negatively and materially impacted due to risks and uncertainties, including the impacts of inflationary pressures globally and the war in Ukraine and its broader macroeconomic implications. Consumer spending has been and may continue to be negatively impacted by inflationary pressures, and other macroeconomic and geopolitical factors. All these factors have negatively impacted, and might continue to negatively impact, our direct sales to end consumers and our sales to our wholesale customers. Historically, we have minimized the impact of product, wages and logistic cost increases by raising prices, renegotiating costs, changing suppliers, and improving operating efficiencies. However, no assurance can be given that we will be able to offset such inflationary cost increases in the future.

### Off-Balance Sheet Arrangements

In addition to the commitments included in the Contractual Obligations table above, we have outstanding letters of credit of $504 outstanding as of March 31, 2023 related to the purchase of inventory. These letters of credit expire at various dates through 2030.

We do not maintain any other off-balance sheet arrangements, transactions, obligations, or other relationships with unconsolidated entities that would be expected to have a material current or future effect on our consolidated financial statements. Refer to Note L – Commitments, Contingencies and Other to the Condensed Consolidated Financial Statements included in this Quarterly Report for further information.

### Critical Accounting Policies and the Use of Estimates

There have been no material changes to our critical accounting policies and the use of estimates from these disclosures reported in our Annual Report on Form 10-K on Form 10-K for the fiscal year ended December 31, 2022 filed with the Securities and Exchange Commission on March 1, 2023.

## Market risk

As filed, 3,345 characters.

#### ($ in thousands)

### Interest Rate Risk

We do not engage in the trading of market risk sensitive instruments in the normal course of business. Our financing arrangements are subject to variable interest rates, primarily based on the prime rate and the BSBY. The terms of our $150,000 asset-based revolving credit agreement (the “Credit Facility”) and our collection agency agreements with Rosenthal & Rosenthal, Inc. and CIT Group/Commercial Services, Inc. can be found in the Liquidity and Capital Resources section of Item 2 and in Note N – Credit Agreement and Note O – Factoring Agreements, respectively, to the Condensed Consolidated Financial Statements included in this Quarterly Report. Because we had no cash borrowings under the Credit Facility as of March 31, 2023, a 10% change in interest rates, with all other variables held constant, would have an immaterial effect on our reported interest expense.

As of March 31, 2023, we held short-term investments valued at $13,740, which consist of certificates of deposit. We have the ability to hold these investments until maturity.

### Foreign Currency Exchange Rate Risk

We face market risk to the extent that our U.S. or foreign operations involve the transaction of business in foreign currencies. In addition, our inventory purchases are primarily done in foreign jurisdictions and inventory purchases may be impacted by fluctuations in the exchange rates between the U.S. dollar and the local currencies of our contract manufacturers, which could have the effect of increasing the cost of goods sold in the future. We manage these risks primarily by denominating these purchases in U.S. dollars. To mitigate the risk of purchases, that are denominated in foreign currencies, we may enter into forward foreign exchange contracts for terms of no more than two years. A description of our accounting policies for derivative financial instruments is included in Note K – Derivative Instruments to the Condensed Consolidated Financial Statements.

As of March 31, 2023, we had entered into forward foreign exchange contracts with notional amounts totaling $77,084. We performed a sensitivity analysis based on a model that measures the impact of a hypothetical change in foreign currency exchange rates to determine the effects that market risk exposures may have on the fair values of our forward foreign exchange contracts that were outstanding as of March 31, 2023. As of March 31, 2023, a 10% increase or decrease of the U.S. dollar against the exchange rates for foreign currencies under forward foreign exchange contracts, with all other variables held constant, would result in a net increase or decrease in the fair value of our derivatives portfolio of approximately $9,891.

In addition, we are exposed to translation risk in connection with our foreign operations in Canada, Mexico, Europe, South Africa, China, Taiwan, Israel, Malaysia, and the Middle East because our subsidiaries and joint ventures in these countries utilize the local currency as their functional currency, and those financial results are translated into U.S. dollars. As currency exchange rates fluctuate, foreign currency exchange rate translation adjustments reflected in our financial statements with respect to our foreign operations affects the comparability of financial results between years.

## Controls and procedures

As filed, 1,779 characters.

#### Disclosure Controls and Procedures

As required by Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter covered by this Quarterly Report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were, as of the end of the fiscal quarter covered by this Quarterly Report, effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

#### Changes in Internal Control Over Financial Reporting

As required by Rule 13a-15(d) under the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated our internal controls over financial reporting to determine whether any changes occurred during the quarter covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. There were no changes in our internal controls over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

## Risk factors

As filed, 920 characters.

You are encouraged to review the discussion of Forward-Looking Statements and Risk Factors appearing in this report at Part I, “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

In addition to the other information set forth in this Report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 1, 2023 (the “2022 Form 10-K”) which could materially affect our business, financial condition, operating results, earnings or stock price, in various ways. The risks described in the 2022 Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results.

Filed May 10, 2023.
Source: SEC EDGAR, the filing index for accession 0001628280-23-017089. Last ingested by Listed: Oct 24, 2026, 15:00 ET. No prices; not investment advice.