- Still too early to tell if they will be able to completely offet
- See HSD increases as the peak
- Key offset to cost inflation is markdown management - faster reaction increases turns = max gross profit $$
- Keds most exposed brand (canvas) with 7-8mm of ~195mm pair in total annually
- Expressive consumer still larger portion of business than more cost conscience customer
- Focused on hitting trends for expressive customer and driving price to offset lower end
- At this point, a return of the lower end consumer would be gravy
- ROST and TJX have offered lower price offering at times but not consistently
- Have stopped trying to compete at the very low end - hurt them in early 2010
- Engineer down to the material level to manage cost
- Size Assortment Matrix (SAM) - key process used to decide whether to include tail sizes (beyond core sizing) for new styles + colorways to increase turns
- At most Payless locations now shifting to implement at Stride Rite retail
- Expect 2011 capital allocation to reduce debt to be ~1/3 of EBITDA consistent with recent years
- Sperry - women's segment now as big as men's
- Have reduced door count by 1000 doors while growing retail driving gross margin expansion
- Likely to add another 10 stores this year
- Not sure where ceiling is for stores beyond 50
- HSD, LDD price increases in 2011
- Will continue to operate under the same margin requirements
- Labor accounts for 25-30% of cost of shoe
- Don't expect cost inflation to impact GMs in 2011 due to ability to pass through
- Could see margins dip below 40% depending on how fast they can sell through overhang - but only for short periods of time
- Still source 90%+ in China and expect to maintain that level near-term rather than shift like rest of industry
- All core backlogs are positive, with mens and kids showing the most strength.
- Women's SRR selling better than men's
- Kids "on fire"
- ~$300mm worldwide
- Priced at the higher end
- Accounts for ~20-25% of sales
- Doing more business with FINL than in years past
- Toning sales 50-75% the size of U.S. at peak
- Q2 & Q3 largest qtrs in terms of spend
- <10% of sales
- Did very well in Q3 & Q4
European Weather Impact:
- Didn’t see material slowdown others have highlighted (boot sales offset declines in other categories)
Technical Athletic Launch in 2011:
- July/Aug launch - first at SKX retail then at wholesale 4-6 weeks later
- Lightweight running first test of $100+ product post toning – will also offer $70 entry point
- Believes toning success gave brand confirmation/right to sell through premium priced product
- Transition expected to take place in Q4 2011 - will store product in new facility starting in April/May
- Expect to be shipping out of by the '11 holiday
- Seeing new store opportunities for LIDS up to 1100-1200 locations domestically – not anchored to malls (i.e. ski slopes)
- LIDS Locker Room concept born from Sports Fanatics acquisition/added capability adds opportunity for ~500 locations
- Has been comping nicely
- In-store embroidering capability a key sales driver
- Adds ~8% to sales
- Roughly 50% of stores have capability
- Building Lids Team Sports concepts closely with NKE
- NKE is well penetrated with top 100, but very little exposure to smaller teams both College and HS at the local level - GCO offers that oppy.
- Most players in this space private players, Nike ramping efforts aggressively will have product/blanks that can be customized
- Also issued 5-year financial targets
- For the last several weeks men's footwear has outperformed women's
- SKX did their homework in evolving the toning brand – like the evolution of product will continue to support
- the Big Deal promotion has regularly been 12% of total sales for at least the past year.
- Will have a mobile transaction system implemented by end of Q1
- Capacity is freeing up as demand for toning shoes rolls over.
- Int'l a key growth opportunity - only 5% of total sales
- Currently $31mm in sales via distribution agreements - goal to get to $100mm+ by 2012
- 7 new brands added since 2009 should grow to ~$150mm over next 3-years from $50mm currently
- Fixing direct retail a key initiative with goal to get to 10% EBIT margins by 2012
- e-commerce only accounted for $22mm in sales LTM (<4% of sales)
- Goal to reach $2Bn in sales by 2015
- Int’l be 40% of rev. by 2015
- Marketing currently only 2% of sales, will be increasing UGG marketing spend by 1.5% of sales in 2011
- Men's business a key initiative: Pilot program in U.S. for 2011 launching in Q4 (Tom Brady endorsement)
- Stores expansion - 260 by end of 2011 - vs. ~180 at end of 2010Business very strong
- 5-10% growth in raw materials
- Shift to men’s on the margin
- Tom Brady….ugg! Now’s he’s wearing UA AND Ugg. That’s a first…
- SIGMA not looking good. Actually, it looks bad.
- Core product now accounts for only 10% of revs
- Excited about new technology in ’11, with emphasis on lightweight product. 5 crocs chuck taylor-like shoes equal weight of one original converse version.
- Dual injection with both softer and harder material for increased durability
- Expect the company to continue to operate under one brand. Believes DECK is a great company to emulate.
- Likely to see rollout of Jibbitz by Crocs at TGT. $14.99 price point using molds from the Mamba line, originally slated for JCP 3 years ago.
- Just launched "duet" product this week
- Marketing Spend of $15-$18mm in 2010 towards integrated efforts nonrecurring 2011 efforts will shift toward direct to consumer
- Footwear wholesale - goal to grow 2x industry
- Believe Merrill will be company's first $1Bn brand
- Sold more than 400k pair of new Merrill barefoot shoes for Spring 2011 season - launched mid Feb
- Has been very well received at specialty running shops to get M into those doors
- Consumer Direct only ~7% of sales expect to take to 15% of sales over time
- Cost inflation MSD in 1H, MSD to HSD in 2H
- One of the most bullish at the conference – on both square footage and comp
- 12-15 new stores in 2010 were Movie Gallery locations
- Opportunity for 30-35 net store additions in 2011
- 40-50% from Movie Gallery or Blockbuster locations
- Plan to expand an additional ~20 stores in 2011 up to 7-8k sq. ft. formats
- Only 20-25% of store base competes with a FL
- Nike supporting marketing both in-store and external - HIBB's full-service positioning a competitive advantage
- NKE accounts for ~50% of sales overall; 60-65% of footwear
- Interestingly, they specifically called out KSWS from a product standpoint
- That matters when a company’s (KSWS) sales is cut in half over 3 years.
- KSWS Tubes for Spring '11 one of CMO's highlights
- E3 replenishment system hasn't resulted in material bump in inventory as expected - even more efficient
- “A NFL lockout would have a small impact on comps. However, we’re more excited about the prospects for the NFL/Nike relationship and what it will mean for new products. Did you see the Oregon Ducks uniforms? Very exciting.”
- Landlords still not giving in on rents, even though these stores have sat vacant. Expect capitulation and the sites are pretty good.
- Being in-stock, aided by replenishment systems, is still key to driving comps.
- Weather is simply impossible to read
- Toning is a Fad
- In 2H11 there WILL be a product margin squeeze.
- ‘We’ll all work together in ironing out the costs.’
- ‘But it won’t be an even distribution, and uncertainty is significant on timing and magnitude.
- Paul Marciano, 1st presentation in 14 years. Brand name inspired by billboard from McDonalds. Wanted one syllable brand name.
- 40% of rev’s licensing, 50% in Europe
- 15% NA wholesale, 85% NA retail….global: 36% eur, 44% NA retail, 8% asia, 8% NA wholesale, lisc 4%
- Opportunity in north Europe, currently in south. Germany being evaluated
- Italy is half of Europe
- Pricing at wholesale Ts going up
- Blank Ts demand is stronger
- No unit degradation in last 6mo
- 6mo lag between cotton costs and sale is puts significant strain on industry requiring much higher working capital
- Spent another $15mm on inventory YY due to cost increases
- “We want to own your closet, the whole closet. And, maybe some drawers and shelves as well”
- More than double north face to $3 bil. -5 yrs
- Mid march investor day will layout 5 year plans
- International EBIT 200 bps higher than total corp op margin. Lower tax rate abroad helps EPS. Will be 40% of total in 5 years.
- China $1 bln opportunity
- No single brand fully developed on retail. Vans largest. 67 TNF, grows to 190 globally 5 years
- GM’s will continue to expand in same manner as prior 5 years.
- Spent incremental $100 mm on sg&A in 2010 centered on marketinf. Half on tnf and vans.
- 5.6% of total (mktg) was, 5% historically. Will be lower in 2011, to offset margin pressure
- Cash flow: exceed $900 mm, was $850. Acquisitions top priority.
- Focus on outdoor, action sports
- 5mm repurchase in 2010, vs. historical rate of 1-2mm shares per year.
- May see north of 80 new stores in 2011, incremental comes from international
- Will cut incremental marketing spend from ’10 to offset cost pressures
- Not yet locked in on denim for Fall. Many denim mills still not accepting orders and holding out for more clairty.
- Bought some denim textiles in late ’10, will show up in YE inventories. Small but will help to offset costs.
- Rock and Republic (if successfully closed with courts) will be positioned away from competing with Seven. Likely goes downstream from super premium.
- All brands taking price, but not all due to cotton.
- Feb 1st will see price increases in denim at retail, at WMT
- Low-end denim price increase will not fully offset costs
- Expect 10-15% more cotton to be planted, which may result in substantial price relief by year end.
Gordman’s CEO: “Pricing is not the issue to understand the Gordman’s model”.
- Is it me, or did this story actually sound decent???
- The growth profile seems to be improving.