R3: JCG, KCP, WWW, Social Spend


January 18, 2010





  • Now that Kenneth Cole has announced its closing of the company’s flagship Rockefeller Center location, speculation is about to begin on who will take over the prime retail location.  Real estate experts are suggesting the space should rent for $2000+ per foot. 
  • According to the Consumer Reports Sentiment Index, consumers are more optimistic than they have been since October 2008.  The index registered 48.7 in January, up from 45.1 in December and 44.1 one year ago.  The most optimistic consumers are age 18-34 and those with income over $100,000.
  • According to date from Nielsen, 75% of Americans already have high-speed internet access.  HDTV adoption ranks second with 46% penetration, followed by DVR’s at 35%, and handheld media devices at 20%. Tablets and 3DTV currently have just 1% penetration.   



J. Crew Go-Shop Period Expires - The deadline came and went.  The go-shop provision in TPG Capital and Leonard Green & Partners’ offer of $2.86 billion, or $43.50 a share, for J. Crew Group Inc. expired Saturday. Any new offer for the specialty retailer needed to be made before its expiration.  J. Crew chief executive officer Millard “Mickey” Drexler has indicated he’s unwilling to work for a new boss other than those at TPG, which owned the specialty retailer before taking it public in 2006. The 53-day go-shop was longer than usual, believed to allow potential buyers time to review holiday 2010 sales results. Sears Holdings Corp., Urban Outfitters Inc. and two private equity firms were reported to be considering rival bids. Even if no one ponies up with an offer, those kicking the tires might have had a once-in-a-lifetime opportunity to get a look at J. Crew’s books under the guise of “due diligence.” <WWD>

Hedgeye Retail’s Take: :  Yet another set of rumors that didn’t pan out when it came to potential suitors.  Now stay tuned for lawsuit settlement talk surrounding shareholders who feel the board did not do an adequate job “shopping” around in the first place.


NRF Holiday Sales Climb 5.3% - According to the National Retail Federation, retail industry sales (which exclude automobiles, gas stations, and restaurants) for December rose 5.3% unadjusted year-over-year and 0.5% seasonally adjusted from November. As a result, preliminary 2010 holiday sales, which combine the full months of November and December, rose 5.7% to $462 billion, surpassing NRF's forecast of 3.3%. This represents the best holiday sales gain since 2004 when holiday sales increased 5.9%. "In spite of weakness in employment and rising gas prices, consumers showed they still have spending power which helped retailers when it counted most," said NRF President and CEO Matthew Shay.  "Retailers did a tremendous job planning for the season by managing inventory and hitting the right price points that helped them tap into pent up demand." <SportsOneSource>

Hedgeye Retail’s Take: Definitely old news by now and optimistic by “same store sales” standards.  Perhaps this is a good reason to reflect on why sales don’t always tell the whole story.  At the end of the day, sales + discounting= better measure of holiday performance. 


Merrel Brand Seeking Apparel Appeal - Merrell is getting serious about clothing. The brand, which launched apparel in 2006 to mixed reviews from retailers, is gearing up to make the offering a key component of its business. “The Merrell group has pretty lofty goals,” said Mark Sandquist, president of global apparel and accessories at Wolverine World Wide Inc. “We have about 14 million consumers that, in theory, would buy Merrell apparel.” Sandquist, who joined Wolverine from Columbia in August 2009, has been charged with invigorating Merrell’s apparel and accessories division and is making moves to bring the non-footwear offerings to a broader consumer base. To do so, he said, they will boost the brand’s presence in stores and begin targeting accounts already carrying Merrell footwear. <WWD>

Hedgeye Retail’s Take: After a very slow start, we wonder if this now is truly the credible push that Merrel needs to move the brand beyond footwear and onto the body. Price points will be key to the strategy, especially given the crowded competitive space that already exists within the outdoor apparel sector. 


Price Hikes Top of Mind for Outdoor Players - Though economic and sourcing issues could continue to weigh heavily on the outdoor market in 2011, a large number of executives told Footwear News they were optimistic about the coming year. In the lead-up to the Outdoor Retailer show, set for Jan. 20-23 in Salt Lake City, FN polled vendors and retailers for their thoughts on the issues and trends impacting the category. They said the economy was the biggest issue facing the industry, followed by consumer spending and rising prices. In spite of the challenges, most respondents were upbeat. Roughly 46 percent of participants said they were feeling optimistic about spring ’11, while 39 percent were “somewhat optimistic” and 16 percent had a negative outlook. <WWD>

Hedgeye Retail’s Take: 2011 will be a highly competitive year in the outdoor industry with several new players entering the space and coming out with new category introductions. This all equates to innovative product at retail, which might just get customers in the door for a look.


Imports Increase at Slower Pace in November - Textile and apparel imports to the U.S. rose 20.1 percent in November compared with a year earlier, to 4.6 billion square meter equivalents, representing the lowest volume of shipments in five months, the Commerce Department’s Office of Textiles & Apparel said Thursday. Inventory restocking drove shipments to peak levels from June through October. Apparel imports in November increased 23.9 percent to 2.1 billion SME compared with a year earlier, while textile shipments grew 17.1 percent to 2.5 billion SME. The nation’s overall trade deficit narrowed slightly to $38.3 billion in November from $38.4 billion in October.<WWD>

Hedgeye Retail’s Take: Largely expected as retailers and ‘brands’ alike took orders earlier than usual this year driven by concerns over elevated air freight costs. Despite sales coming in better than expected over the holidays, our sense is that we aren’t likely to see demand driven by constrained supply just yet in retail.


Facebook Drives US Social Network Ad Spending Past $3 Billion in 2011 - US marketers will spend $3.08 billion to advertise on social networking sites this year, eMarketer predicts. Spending will be up 55% over the $1.99 billion advertisers devoted to social networks in 2010 and will rise by a further 27.7% next year to reach nearly $4 billion. This year’s dramatic growth in spending will bring social media ad dollars to 10.8% of the total spent online in the US. Worldwide, where social network ad spending will rise 71.6% to $5.97 billion, that proportion will be somewhat lower, at 8.7%. <eMarketer>

Hedgeye Retail’s Take: After proving its value last year, social media spend will be driven not only by increasing allocations from current supporters, but also new converts who were undoubtedly waiting for first mover results. Initially a low cost high impact advertising solution, we expect this spread to narrow in 2011 as the viability of social networking gains viability.   


R3: JCG, KCP, WWW, Social Spend - R3 1 18 11


Vietnam’s Garment Sector Stepping Up Hi-Value Production - Vietnam’s garment and textile industry this year should invest further in hi-value competitively priced products to maintain its position as the world’s top five exporters, according to Deputy Prime Minister Hoang Trung Hai. Hai urged the industry to focus on technological innovation, while sourcing the best raw materials and improving the quality of its human resources, including its management. The sector has set an ambitious target of US$12.7-$13 billion in export earnings this year, according to the Viet Nam National Textile and Garment Group (Vinatex). It is also aiming to source between 55 and 60 per cent of its raw materials locally to cut import costs this year. To achieve these goals, the sector planned to focus on finding new export markets, Vu Duc Giang, Vinatex chairman, said. <FashionNetAsia>

Hedgeye Retail’s Take: Now is the time for Vietnam to capitalize on the momentum its gained from a sourcing perspective and building out human capital is a key first step to further expansion – proactively selling to new export markets won’t hurt either.


Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

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7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

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Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

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GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

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Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

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Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

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Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

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People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

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UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

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Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

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Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

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An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

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