Buy Steven Madden LTD (NSDQ: SHOO)

Target Price: $58

Buy Up To: $44

Options Trade: Buy to open the December 15, 2017 call on Steven Madden LTD (SHOO) with a strike price of $45 at $1.10 or lower. Symbol (SHOO171215C45)

Trade Rationale: These are not your father’s sneakers. Madden is knocking it out of the park with fashion forward athletic shoes. These slip-on, sometimes checkered or striped shoes are seen more often on the subway and skateboard park than on the basketball court. They are a fashion statement, not a performance shoe, and not reliant on the next hot athlete endorsing a style.

Despite 82% of its revenue coming from wholesale customers, Madden has little exposure to department stores. It has wisely focused on customers like Zappo’s and DSW Shoes who are enjoying success in e-commerce.

1. Open to buy dollars, the money budgeted for new merchandise orders at retailers, are shifting towards Steve Madden shoes.
2. Fashion athletic is strong. This is a completely different market than high-end performance athletic which has been in the doldrums. Superga and  Madden athletic slip-ons are all the rage.
3. Brands like Dolce Vita and Blondo shift Madden’s product mix higher up the price chain and generate higher profits.
4. Although the women’s business has been leading gains, Madden men’s and children’s are picking up steam.
5. Madden’s third quarter, to be announced on or about November 1, is the largest and most important of the year. I expect revenue growth higher than the 8% modeled in by analysts.
6. Estimates for the second half of the year look for very little earnings growth, an assumption that looks too conservative based on the 24% growth recorded year to date.