How Steve Madden Wins From China's Renminbi Devaluation

In a report published Wednesday, Piper Jaffray analyst Erinn E. Murphy maintained an Overweight rating on Steven Madden, Ltd (NASDAQ: SHOO), with a price target of $47, after meeting the company's CEO and VP Finance.Analyst Erinn Murphy said that Steven Madden's management "was positive on the broad-spread strength across the business, driven by dress, casual, fashion athletic and boots & booties."While the strong US dollar had been Steve Madden's strength while purchasing materials in Italy and Brazil, the recent devaluation of the Chinese Yuan was also expected to boost the company's earnings."Steve Madden does not carry revenue risk as they do not sell into China directly but benefits from a COGS perspective given 89% of their production is in China. We expect an incremental benefit to COGS starting in Spring 2016," Murphy wrote.Murphy considers Steven Madden to be among the "best positioned" companies among "our universe" to benefit from the devaluation of the Chinese Yuan, since the "vast majority of their production" was in China with no offset from sales in the Asian nation. "At current spot rates, we estimate a benefit of 150-170 bps to gross margin in FY16," the Piper Jaffray report stated.Steven Madden was expected to record an EPS of $3.30 in FY17, with operating margins estimated expand to 14.7 percent, from 12.6 percent in FY15. "Following challenged comps over the past 18+ months, which collapsed retail margins from 11.8% to 4.3%, we see the company back on a path towards 12% over time within this division," Murphy said.