STEVEN MADDEN, LTD. (SHOO) FY 2022 MD&A

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and notes thereto appearing elsewhere in this Annual Report on Form 10-K.

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.

Our business comprises five distinct segments: Wholesale Footwear, Wholesale Accessories/Apparel, Direct-to-Consumer, First Cost, and Licensing. 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 First Cost segment represents commission based activities where the Company serves as a buying agent for footwear products under private labels for select national chains, and value-priced retailers. 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.

Dividends

Our Board of Directors approved a quarterly cash dividend of $0.21 per share on our outstanding shares of common stock which was paid on March 25, 2022, June 24, 2022, September 26, 2022 and December 30, 2022. The aggregate cash dividends paid for the twelve months ended December 31, 2022 was $66,005.

On February 22, 2023, our Board of Directors approved a quarterly dividend of $0.21 per share is payable on March 24, 2023 to stockholders of record as of the close of business on March 10, 2023.

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Executive Summary

Recent Developments

During fiscal year 2022, the Company formed a joint venture ("AG SM Holdings Limited") with Apparel FZCO through its subsidiary, Madden Asia Holding Limited. The Company controls all the significant participating rights of the joint venture and is the majority interest holder in AG SM Holdings Limited. AG SM Holdings Limited is the exclusive distributor of the Company’s products in the Middle East. For additional information on these acquisitions, refer to Note D – Acquisitions & Sale of Minority Noncontrolling Interest in the Notes to our consolidated financial statements included in this Annual Report.

Key Highlights

Total revenue for 2022 increased by 13.7% to $2,122,009 from $1,866,142 in 2021. Net income attributable to Steven Madden, Ltd. was $216,061 in 2022 compared to $190,678 in 2021. Our effective tax rate for 2022 increased to 23.1% compared to 20.5% in 2021. Diluted earnings per share in 2022 was $2.77 per share on 78,069 diluted weighted average shares outstanding compared to diluted income of $2.34 per share on 81,628 diluted weighted average shares outstanding in the prior year.

As of December 31, 2022, we had 232 brick-and-mortar retail stores and six e-commerce websites in operation, compared to 214 brick-and-mortar retail stores and six e-commerce websites as of December 31, 2021. This increase resulted from the opening of 28 brick-and-mortar stores, including 12 stores that were acquired through our joint venture in the Middle East, partially offset by the closure of 10 brick-and-mortar stores. The Company also operated 20 concessions in international markets.

Our inventory turnover (calculated on a trailing four quarter average) for the years ended December 31, 2022 and 2021 was 4.9 times and 6.4 times, respectively. Our total Company accounts receivable average collection days were 72 days in 2022 compared to 67 days in 2021. As of December 31, 2022, we had $289,798 in cash, cash equivalents and short-term investments, no debt and total stockholders’ equity of $843,863. Working capital increased to $522,649 as of December 31, 2022, compared to $509,470 on December 31, 2021.

As we look ahead, we remain focused on delivering trend-right product, deepening connections with our consumers, enhancing our digital commerce business, expanding our non-footwear categories, growing our international business and efficiently managing our inventory and expenses while continuing to make meaningful progress on our corporate social responsibility initiatives.

COVID-19

The COVID-19 pandemic has negatively impacted the global economy, disrupted consumer spending and global supply chains, and created significant volatility and disruption of financial markets. Beginning in March 2020, stores have experienced temporary closures, and we implemented precautionary measures in line with guidance from local authorities when stores reopened. The COVID-19 pandemic, and post pandemic recovery, have also significantly impacted our supply chain. In particular, we have experienced disruptions and delays in shipments, increases in shipping costs and increases in the pricing of certain components of our products. The receipt of inventory sourced from impacted areas has been slowed or disrupted and our manufacturers have also faced similar challenges in receiving raw materials and fulfilling our orders.

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RESULTS OF OPERATIONS

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The following section discusses our results of operations for 2022 and 2021 and year-to-year comparisons between those periods. Discussions of 2020 and year-to-year comparisons between 2021 and 2020 are not included in this Annual Report on Form 10-K and can be found within Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2021 Annual Report on Form 10-K filed with the SEC on March 1, 2022.

Year Ended December 31, 2022 vs. Year Ended December 31, 2021

Consolidated:

Total revenue in the year ended December 31, 2022 increased 13.7% to $2,122,009 compared to $1,866,142 for in 2021, with increases in the Wholesale Footwear, Wholesale Accessories/Apparel, and Direct-to-Consumer segments. Gross profit was $873,836, or 41.2% of total revenue, as compared to $767,497, or 41.1% of total revenue, in the prior year. Operating expenses in 2022 were $592,192, or 27.9%, of total revenue, as compared to $519,848, or 27.9% of total revenue, in the prior year. Operating expenses in 2022 include the accelerated amortization of a trademark of $7,050 and a $5,807 benefit from the change in valuation of a contingent consideration. In 2021, impairment charges of $2,620 and $1,432 were recorded associated with certain intangibles and lease right-of-use assets and fixed assets, respectively. No similar impairment charges were recorded in 2022. In the year ended December 31, 2022, income from operations increased to $281,644, or 13.3% of total revenue, as compared to $243,597, or 13.1% of total revenue, in the prior year. The effective tax rate for the year ended December 31, 2022 was 23.1% compared to 20.5% last year. The primary changes between the Company’s effective tax rate for the year ended December 31, 2022 and 2021 are due to a lower tax benefit from the exercising and vesting of equity-based awards and an increase in pre-tax income in jurisdictions with higher tax rates. Net income attributable to Steven Madden, Ltd. for the year ended December 31, 2022 was $216,061 compared to $190,678 for the year ended December 31, 2021.

Wholesale Footwear Segment:

Revenue from the Wholesale Footwear segment in the year ended December 31, 2022 accounted for $1,194,890, or 56.3% of total revenue, as compared to $1,022,322, or 54.8% of total revenue, in the year ended December 31, 2021. The 16.9% increase in revenue in the current year is primarily the result of an increase in sales of our Steve Madden, Anne Klein and Dolce Vita brands. Gross profit was $431,081, or 36.1% of Wholesale Footwear revenue, in the year ended December 31, 2022 as compared to $345,167, or 33.8% of Wholesale Footwear revenue, in the year ended December 31, 2021. The increase of gross profit as a percentage of revenue was primarily due to the shift in revenue mix to our higher-margin branded business partially offset by higher freight costs. Operating expenses in the year ended December 31, 2022 were $166,123, or 13.9%, of Wholesale Footwear revenue, as compared to $128,004, or 12.5% of Wholesale Footwear revenue, in the year ended December 31, 2021. The increase in operating expenses as a percentage of Wholesale Footwear revenue was primarily attributable to higher warehouse expenses, payroll, and advertising expenses. Income from operations increased to $264,958, or 22.2% of Wholesale Footwear revenue in 2022 as compared to $217,163, or 21.2% of Wholesale Footwear revenue, in 2021.

Wholesale Accessories/Apparel Segment:

Revenue from the Wholesale Accessories/Apparel segment in the year ended December 31, 2022 accounted for $394,676, or 18.6% of total revenue, as compared to $343,675, or 18.4% of total revenue, in the year ended December 31, 2021. The 14.8% increase in revenue resulted from an increase in our branded handbag business as well as our apparel business. Gross profit was $100,085, or 25.4% of Wholesale Accessories/Apparel revenue, in the year ended December 31, 2022, as compared to $94,675, or 27.5% of Wholesale Accessories/Apparel revenue, in the year ended December 31, 2021. The decrease of gross profit as a percentage of revenue was primarily due to higher freight costs. Operating expenses in the year ended December 31, 2022 were $70,310, or 17.8%, of Wholesale Accessories/Apparel revenue, as compared to $64,776, or 18.8%, of Wholesale Accessories/Apparel revenue, in the year ended December 31, 2021. The decrease in operating expenses as a percentage of Wholesale Accessories/Apparel revenue was primarily attributable to greater leverage from higher revenue and benefit from the change in valuation of our contingent consideration, partially offset by the accelerated amortization of a trademark. In 2021, impairment charges of $2,620 and $651 were recorded associated with certain intangibles and lease right-of-use assets and fixed assets, respectively. No similar impairment charges were recorded in 2022. Income from operations for the Wholesale Accessories/Apparel segment in 2022 was $29,775, or 7.5% of Wholesale Accessories/Apparel revenue, as compared to $26,628, or 7.7% of Wholesale Accessories/Apparel revenue, in 2021.

Direct-to-Consumer Segment:

In the year ended December 31, 2022, revenue from the Direct-to-Consumer segment accounted for $521,729, or 24.6% of total revenue, as compared to $487,906, or 26.1% of total revenue, in the twelve months of 2021. The 6.9% increase in revenue was driven by increases in both our brick-and-mortar stores and our e-commerce business. We opened 28 brick-and-mortar stores and closed 10 brick-and-mortar stores during the year ended December 31, 2022 and ended the year with 232 brick-and-mortar stores and six e-commerce sites compared to 214 brick-and-mortar stores and six e-commerce sites as of

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December 31, 2021. During the year ended December 31, 2022, gross profit was $331,956, or 63.6% of Direct-to-Consumer revenue, compared to $315,416, or 64.6% of Direct-to-Consumer revenue, in the twelve months of 2021. The decrease in gross profit as a percentage of revenue was primarily due to higher promotional activity, partially offset by a reduction in air freight expense. Operating expenses for the twelve months of 2022 were $264,307, or 50.7% of Direct-to-Consumer revenue, as compared to $240,093, or 49.2% of Direct-to-Consumer revenue, for the twelve months of 2021. The increase in operating expenses as a percentage of Direct-to-Consumer revenue was primarily due to higher advertising and payroll related expenses. In 2021, impairment charges of $781 were recorded associated with certain fixed assets and lease right-of-use assets. No similar impairment charges were recorded in 2022. In 2022, income from operations for the Direct-to-Consumer segment was $67,649, or 13.0% of Direct-to-Consumer revenue as compared to $74,542, or 15.3% of Direct-to-Consumer revenue, in 2021.

First Cost Segment:

Commission income generated by the First Cost segment accounted for $916 for the year ended December 31, 2022 compared to $2,346, or 0.1% of total revenue, for the year ended December 31, 2021. Operating expenses decreased to $150 in the current period compared to $375 of last year. Income from operations was $766 for the year ended December 31, 2022 as compared to income from operations of $1,971 for the year ended December 31, 2021.

Licensing Segment:

Royalty income generated by the Licensing segment accounted for $9,798, or 0.5% of total revenue, for the year ended December 31, 2022 compared to $9,893, or 0.5% of total revenue, for the year ended December 31, 2021. Operating expenses increased to $1,944 in the current year compared to $1,785 to last year. Income from the Licensing segment was $7,854 for the year ended December 31, 2022 as compared to $8,108 in the prior 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, legal, human resources, information technology, cyber security, corporate social responsibility, and other shared services. Corporate operating expenses increased 5.4% to $89,358 during the year ended December 31, 2022 as compared to $84,815 in the prior year.

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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 $289,798 and $263,536 at December 31, 2022 and December 31, 2021, respectively. Of the total cash, cash equivalents and short-term investments as of December 31, 2022, $133,729, or approximately 46%, was held in our foreign subsidiaries, and of the total cash, cash equivalents and short-term investments at December 31, 2021, $156,112, or approximately 59%, 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 December 31, 2022, we had working capital of $522,649, cash and cash equivalents of $274,713, and short-term investments of $15,085 and no cash borrowing and $503.9 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.

Operating Activities

Cash provided by operations was $267,883 in 2022 compared to $159,463 in the prior year. The improvement in cash provided by operations was primarily driven by favorable changes in receivables, inventories, and an increase in net income, partially offset by unfavorable changes in accounts payable and accrued expenses.

Investing Activities

Cash provided by investing activities was $5,517 for the year ended December 31, 2022, which consisted of cash received of $73,998 from the maturities and sales of short-term investments partially offset by purchases of $45,130 in short-term investments. We also made capital expenditures of $16,351, which were mainly for systems enhancements, new store openings and leasehold improvements. We also had investments of $7,000, of which $2,000 consisted of a purchase of a trademark and $5,000 related to other investing activities.

Financing Activities

During the year ended December 31, 2022, net cash used in financing activities was $215,828, which primarily consisted of share repurchases of $148,878 and cash dividends paid of $66,005.

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Contractual Obligations

Our contractual obligations as of December 31, 2022 were as follows:

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 $9,675 in 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"). For further information, refer to Note N – Income Taxes to the Consolidated Financial Statements included in this Annual Report on Form 10-K. Excluded from the contractual obligations table above are long-term taxes payable of $1,145 as of December 31, 2022 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

In February 2022, our Board of Directors declared a quarterly cash dividend of $0.21 per share on our outstanding shares of common stock. The dividend was paid on March 25, 2022, to stockholders of record as of the close of business on March 11, 2022. We paid total cash dividends for the three months ended March 31, 2022 of $16,774.

In April 2022, our Board of Directors declared a quarterly cash dividend of $0.21 per share on our outstanding shares of common stock. The dividend was paid on June 24, 2022, to stockholders of record as of the close of business on June 13, 2022. We paid total cash dividends for the three months ended June 30, 2022 of $16,615.

In July 2022, our Board of Directors declared a quarterly cash dividend of $0.21 per share on our outstanding shares of common stock. The dividend was paid on September 26, 2022, to stockholders of record as of the close of business on September 16, 2022. We paid total cash dividends for the three months ended September 30, 2022 of $16,385.

In November 2022, our Board of Directors declared a quarterly cash dividend of $0.21 per share on our outstanding shares of common stock. The dividend was paid on December 30, 2022, to stockholders of record as of the close of business on December 16, 2022. We paid total cash dividends for the three months ended December 31, 2022 of $16,231.

On February 22, 2023, our Board of Directors approved a quarterly cash dividend. The quarterly dividend of $0.21 per share is payable on March 24, 2023 to stockholders of record as of the close of business on March 10, 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 dividends will be paid to holders of our common stock in the future.

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Inflation

Inflation and cost pressures including increasing raw material, labor and freight costs have had a significant impact on our profitability in the fiscal year ended December 31, 2022 and elevated prices are expected to continue in 2023. We have minimized the impact of product, wage and freight 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 any such inflationary cost increases in the future.

CRITICAL ACCOUNTING POLICIES AND THE USE OF ESTIMATES

Management believes the following critical accounting estimates are the most significantly affected by judgments and assumptions used in the preparation of our consolidated financial statements: allowances for doubtful accounts; markdowns and chargeback allowances, co-op advertising allowances, customer returns; inventory valuation; valuation of intangible assets and goodwill; and impairment of other long-lived assets. Our estimates are made based upon historical factors, current and future circumstances and market conditions, and the experience and judgment of management. Assumptions and estimates are evaluated on an ongoing basis, and we may employ outside experts to assist in the valuation process of our intangible assets, goodwill, and other long-lived assets.

Allowances for doubtful accounts. A vast majority of our customers’ receivable balances are protected under our factoring and collection agency agreement with Rosenthal & Rosenthal, Inc. (“Rosenthal”), described in Note Q – Factoring Agreement to the Consolidated Financial Statements included in this Form 10-K. Under this agreement, Rosenthal assumes the credit risk resulting from a customer’s financial inability to make payment of credit-approved receivables. We also use risk insurance, letters of credit and put agreements to mitigate credit risk for a significant portion of the receivables not covered under our Rosenthal agreement. The balance of receivables not covered under our Rosenthal agreement is reduced by an allowance for amounts that may be uncollectible in the future.

The estimated allowance for doubtful accounts is based on an analysis of the aging of accounts receivable, assessments of collectability based on historical trends, the financial condition of our customers and an evaluation of economic conditions. Differences in management’s estimation of the above factors could impact our results of operations and financial position. The balances of allowances for doubtful accounts are generally correlated with our revenues from wholesale customers whose receivables are not covered under our Rosenthal agreement, and actual losses have historically been within our expectations and in line with the allowances we have established. The balances and activity in the allowances for doubtful accounts are presented in Note T – Valuation and Qualifying Accounts to the Consolidated Financial Statements included in this Form 10-K. A hypothetical 5% increase in our allowance for doubtful accounts as of December 31, 2022 would have increased our 2022 operating expenses by approximately $400.

Markdowns, chargebacks, co-op advertising, and customer returns. As described in Note B – Summary of Significant Accounting Policies to the Consolidated Financial Statements included in this Form 10-K, we provide variable consideration to our wholesale customers to maximize sales of our product on the retail floor, in the form of markdowns and chargeback allowances, co-op advertising allowances, and return reserves related to the current period sales.

a.Markdowns and chargeback allowances. We evaluate anticipated customer markdowns and chargeback allowances by reviewing several performance indicators for our major customers. These performance indicators, which include inventory levels on the retail floors, sell through rates to the end consumer and gross margin levels, are analyzed by management to estimate the amount of customer allowances. We also discuss product performance with our retail partners on an ongoing basis to gather more intelligence to inform our estimation process. Differences in management’s estimation of the above factors from period to period could impact our results of operations and financial position. The levels of markdown and chargeback allowances are generally correlated with our revenues to wholesale customers. A hypothetical 5% increase in the reserve balance for markdowns and chargeback allowances as of December 31, 2022 would have decreased our 2022 revenue by approximately $1,000.

b.Co-op advertising allowances. Under our co-op advertising programs, we agree to reimburse the retailer for a portion of the costs incurred by the retailer to advertise and promote some of our products. We estimate the costs of co-op advertising programs based on the terms of the agreements with our customers. Differences in management’s estimation of the co-op advertising activity at our customers and the resulting amount of the reserve for these allowances from period to period could impact our results of operations and financial position. The level of co-op advertising support is generally correlated with our revenues to wholesale customers. A hypothetical 5% increase in the reserve balance for co-op advertising allowances as of December 31, 2022 would have decreased our 2022 revenue by approximately $300.

c.Return reserve. Our Direct-to-Consumer segment accepts returns within 30 days from the date of a sale. We estimate a return reserve in the Direct-to-Consumer segment by establishing a return rate using historical returns data. The rate is then applied to eligible revenues recorded in the current period to calculate the reserve. We do not accept returns as a normal business practice in our wholesale segments, except for our Blondo, Dolce Vita and BB Dakota product lines. We estimate such returns based on historical experience and current market conditions. In addition, our wholesale segments may, from time to time, accept returns for damaged products from our wholesale customers on which our

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costs are normally charged back to the responsible third-party factory. The level of returns is generally correlated with our revenues to wholesale customers. A hypothetical 5% increase in the return reserve as of December 31, 2022 would have decreased our 2022 revenue by approximately $200.

The balances and activity in the markdown, chargeback and co-op advertising allowances are included in Note T – Valuation and Qualifying Accounts to the Consolidated Financial Statements included in this Form 10-K.

Inventory valuation. Inventories are stated at the lower of cost or net realizable value, on a first-in, first-out basis. We review inventory on a regular basis for excess and slow-moving inventory. The review is based on an analysis of the age and styles of inventory on hand, historical sales of the same or similar products, and expected net realizable value through future sales. The analysis includes a review of inventory quantities on hand at period-end in relation to year-to-date sales and projections for sales in the foreseeable future as well as subsequent sales and discussions with both traditional and off-price retailers. We consider quantities on hand in excess of estimated future sales to be at risk for market impairment. The estimated net realizable value is determined based on the estimate of selling prices of inventory through off-price and discount store channels, department stores and our own direct-to-consumer channel. The likelihood of any material inventory write-down is dependent primarily on the expectation of future consumer demand for our products, which is influenced by consumer trends, economic and market conditions, weather patterns for seasonal goods and the impacts of the COVID-19 pandemic. A misinterpretation or misunderstanding of future consumer demand for our products due to these or any other factors could result in inventory valuation changes compared to the valuation determined to be appropriate as of the balance sheet date.

In general, our inventory obsolescence estimates have historically been within our expectations and in line with the reserves established, and although possible, significant variation is not expected in the future. A hypothetical 5% increase to inventory reserves at December 31, 2022 would have decreased our 2022 gross profit by approximately $400.

Valuation of intangible assets and goodwill. Goodwill and other intangible assets deemed to have indefinite useful lives are not amortized. These assets are tested for impairment at least annually on the first day of the third quarter, or more frequently if impairment indicators are present. Intangible assets with finite lives are amortized over their estimated useful lives and tested for impairment if indicators are present.

Our annual impairment assessment of goodwill and indefinite-lived intangible assets is generally performed using a qualitative approach to determine whether it is more likely than not that the fair value of a reporting unit or intangible asset is less than its carrying amount. Performance of the qualitative impairment assessment requires judgment in identifying and considering the significance of relevant events and circumstances including external factors, such as macroeconomic and industry conditions (including the COVID-19 pandemic) and the legal and regulatory environment, as well as entity-specific factors, such as actual and planned financial performance, that could impact the fair value of our reporting units and indefinite-lived intangible assets. The results of our most recent quantitative tests are also considered in performing the qualitative assessment.

If the results of the annual qualitative assessment conclude that it is not more likely than not that the fair value of a reporting unit or an indefinite-lived intangible asset exceeds its carrying value, or if interim indicators of impairment are identified, a quantitative impairment test is performed.

A quantitative impairment test involves comparing the fair value of a reporting unit or intangible asset with its carrying value. If the fair value is less than the carrying value, an impairment loss is recorded for an amount equal to the excess of the carrying value over the fair value. For goodwill, the impairment loss is limited to the amount of the respective reporting unit’s allocated goodwill. Determination of the fair value of a reporting unit or indefinite-lived intangible asset is subjective in nature and involves the use of significant estimates and assumptions including consideration of external factors, such as macroeconomic and industry conditions (including the COVID-19 pandemic) and the legal and regulatory environment, as well as entity-specific factors such as actual and planned financial performance. These estimates and assumptions could have a significant impact on whether an impairment charge is recognized and the amount of any such charge. Estimates of fair value are primarily determined using discounted cash flows, market comparisons and recent transactions. These approaches use significant estimates and assumptions, including projected future cash flows, discount rates, growth rates, and determination of appropriate market comparisons. It is possible that our conclusions regarding impairment of goodwill or other intangible assets could change in future periods if, for example, our businesses do not perform as projected or overall economic conditions in future periods vary from current assumptions.

Our annual impairment tests were last performed as of July 1, 2022 using a qualitative assessment, the results of which indicated that it is more likely than not that the fair values of our reporting units and indefinite-lived intangible assets significantly exceeded their carrying values. A hypothetical 10% decrease in the fair values of our reporting units and our indefinite-lived intangible assets as of December 31, 2022 would not have resulted in any impairment charges. No goodwill or intangible asset impairment charges were recorded as a result of our annual impairment tests during any of the years presented in this Form 10-K.

During the fourth quarter of 2021, certain decisions were made by the Company that resulted in the change in the useful life of the BB Dakota trademark from an indefinite to a finite life. As a result, the BB Dakota trademark was assessed for impairment. The estimated fair value of this trademark was determined using an excess earnings method, incorporating the use of projected financial information and a discount rate, which was developed using market participant-based assumptions. As a result of this assessment, the BB Dakota trademark was written down from the carrying value of $9,670 to its fair value of

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$7,050, resulting in a pre-tax, non-cash impairment charge of $2,620. This charge was recorded in impairment of intangibles in the Company’s Consolidated Statements of Income/ (Loss) and recognized in the Wholesale Accessories/Apparel segment. The fair value of $7,050 was amortized over its remaining useful life of one year and was fully amortized at the end of 2022.

As a result of the COVID-19 pandemic and decline in the macroeconomic environment, during the twelve months ended December 31, 2020, the Company’s Cejon, Report, GREATS and Jocelyn trademarks (indefinite-lived intangibles) were written down from an aggregate carrying value of $57,198 to their fair values of $12,925, resulting in a pre-tax non-cash impairment charge of $44,273. These charges were recorded in impairment of intangibles in the Company’s Consolidated Statements of Income/ (Loss) and recognized in three reporting units: $27,472 related to Wholesale Accessories/Apparel, $16,345 related to Wholesale Footwear and $456 related to the Direct-to-Consumer segments, respectively. The estimated fair values of these trademarks were determined using an excess earnings method, incorporating the use of projected financial information and a discount rate, which was developed using market participant-based assumptions.

See Note G – Goodwill and Intangible Assets to the Consolidated Financial Statements included in this Form 10-K for further detail and impairment charges.

Impairment of other long-lived assets. We evaluate other long-lived assets, including property and equipment and operating lease right-of-use assets, for impairment periodically whenever events or changes in circumstances indicate, in management’s judgment, that the carrying value of such assets or asset groups may not be recoverable (as described in Note F – Property and Equipment and Note M – Leases to the Consolidated Financial Statements included in this Form 10-K).

In evaluating long-lived assets for recoverability, we use our best estimate of future cash flows expected to result from the use of the asset or asset group and its eventual disposition, where applicable. Estimates of future cash flows include consideration of macroeconomic trends (including the COVID-19 pandemic) such as consumer spending and entity-specific plans and strategies.

If such estimated future cash flows are less than the asset or asset group’s carrying value, an impairment loss is recognized to the extent the asset or asset group’s carrying value exceeds its fair value. Individual assets in an asset group are not written down below their individual fair value. Fair value is estimated considering external market participant assumptions and discounted cash flows, including those based on estimated market rents for operating lease right-of-use assets. It is possible that our conclusions regarding impairment of long-lived assets could change in future periods if, for example, future cash flows do not meet expectations because of unforeseen adverse future economic and market conditions that negatively impact consumer behavior or spending patterns or market rents decrease significantly.

During 2022, no impairment indicators were identified on long-lived assets; therefore, no impairment was recorded.

During 2021, we recorded an impairment loss of $1,432 on long-lived assets. The carrying value of long-lived assets that had an indicator of impairment as of December 31, 2021 was less than 5% of the balance of long-lived assets at December 31, 2021. Therefore, changes to assumptions of future cash flows or market rents would not have materially impacted the impairment charge.

In 2020, due to the impact of the COVID-19 pandemic on the Company’s operations and the decline in the retail real estate market, the Company identified indicators of impairment for long-lived assets at certain retail stores. As described in Note G – Goodwill and Intangible Assets and Note M – Leases in this Form 10-K, the Company recorded an aggregate impairment charge of $36,895 related to long-lived assets at such retail stores.

See Note G – Goodwill and Intangible Assets and Note M – Leases in this Form 10-K to the Consolidated Financial Statements included in this Form 10-K for further detail and impairment charges.