UPDATE 2-Steven Madden Q3 gross margin declines, shares fall

* Q3 EPS $0.81 vs est $0.77

* Q3 sales $184.1 mln vs est $170.8 mln

* Q3 gross margin falls to 42.1 pct from 44 pct

* Shares fall as much as 11 pct

(Recasts, adds details, analyst comment)

By Nallur Sethuraman

BANGALORE, Nov 2 (Reuters) - Shoemaker Steven Madden SHOO.O reported weak gross margin in the third quarter, hurt by higher markdowns and a shift in its wholesale mix towards lower-margin products, sending its shares down 11 percent.

Gross margin in the quarter fell to 42.1 percent from 44 percent in the year-ago quarter.

Apart from the shift in product mix, margins were also affected by an increase in off-price sales of underperforming products in its wholesale segment.

“Though the results beat the Street’s expectations, the gross margins were lower than the Street expected. The shares might be down because of low gross margins,” Capstone Investments analyst Claire Gallacher said.

However, strong sales helped the company’s third-quarter results beat analysts’ estimates, and it raised its profit outlook for the year. [ID:nASA00YB7]

Shares of the Long Island City, New York-based company, which touched a 52-week high of $44.85 in mid-October, were down 5 percent at $40.18.

The stock was up 54 percent this year through Monday, nearly twice as much as the rise in the S&P Footwear Sub-Industry Index .GSPSHOE.

For the July-September quarter, the company, which primarily sells to 12-to-25-year-old girls, earned $22.9 million, or 81 cents a share, compared with $17.8 million, or 64 cents a share, a year ago.

Sales rose 31 percent to $184.1 million.

Analysts on an average were expecting earnings of 77 cents a share, on revenue of $170.8 million, according to Thomson Reuters I/B/E/S. (Reporting by Mihir Dalal and NR Sethuraman in Bangalore; Editing by Aradhana Aravindan, Vyas Mohan)