R3: FDO, GPS, UA, FOSL

R3: REQUIRED RETAIL READING

February 16, 2010

 

 

 

 

RESEARCH ANECDOTES 

  • FOSL noted that while supply chain labor costs increased 15-20% in 2010, it is not expecting any significant pressure on costs in 2011.  The company continues to mix shift its components away from stainless steel (also some cost pressure) as a result of innovation.  Newness in the product line and focus on new materials will be a key mitigating factor of margin pressure.
  • Home Depot disclosed that 45% of store visitors pay a visit to Homedepot.com before heading to their local store.  Approximately 95% of the Homedepot.com’s content is localized to synch with market pricing and inventory for local stores.  There are approximately 200 markets or zones for which the company manages pricing.
  • In a new twist on employee retention, The Container Store boasts an exceptionally low turnover rate of less than 10% by promoting a more loving workplace environment – literally. More than 40 couples work together at the retailer, which also uses tactics like encouraging shoppers to leave notes for favorite employees while also pumping love songs throughout the store. In an industry plagued by particularly high turnover, something tells us that a higher dose of Michael Bolton in the store is not the quick fix.

OUR TAKE ON OVERNIGHT NEWS

 

Family Dollar Gets Offer From Trian - Trian Group, the private equity firm that holds a 7.9 percent stake in Family Dollar Stores Inc., is looking to buy the rest of the company and take it private for between $55 and $60 a share, valuing the retailer at about $7 billion. In a regulatory filing with the Securities and Exchange Commission, Trian, headed by Nelson Peltz, disclosed that it contacted Howard Levine, Family Dollar’s chairman and chief executive officer, on Tuesday to discuss an acquisition of the shares it doesn’t currently own. Trian said it offered Levine the opportunity to participate in the transaction as an investor and urged the company to form a committee of outside directors to consider the proposal. <WWD>

Hedgeye Retail’s Take:   Enter part 2 of Trian’s involvement which began over the summer with Trian’s view that FDO could improve its operational performance.  Clearly the 8% stakeholder is not happy with the results since then.  Interestingly we note that Trian has not historically taken companies private (let alone in a $7 bln transaction). 

                                                                                    

Macy’s Brings in London Designer - Within U.S. fashion circles, London-based designer Kinder Aggugini is not high on the radar. “I know people don’t know me,” Aggugini said. But the profile could change starting now. On Tuesday night, he kicked off a new program at Macy’s intended to build up the chain’s Impulse contemporary departments, whereby a different designer creating exclusive items gets featured every few months. Karl Lagerfeld and two other designers will follow Aggugini, creating capsule collections selling for about two months at Macy’s this year. Exclusives from all four designers in the fourth quarter will create a unique holiday assortment. <WWD>

Hedgeye Retail’s Take:   Yet another aggressive fashion move by Macy’s to differentiate its offering and draw in a younger consumer.  Expect many more collaborations over the course of the year.

 

Brooks Bros' to Cater to the New Generation - Brooks Brothers wants to embrace another generation of shoppers and it’s quite evident in the fall collection.  “It’s iconic Brooks Brothers modified for today’s world,” said Lou Amendola, the brand’s chief merchandising officer, during a preview of the collection at the Brooks Bros. flagship in Manhattan. He described the strategy as refining the classics across men’s, women’s and children’s wear to broaden the audience without taking a 180-degree fashion turn. About 40 percent of the offering represents updating, with slimmer, shorter fits; softer, less corseted construction for a feminine flair, and relaxed, casual sportswear. Among the fall items: garment-dyed chinos, cargo pants, classic peacoats styled with 1818 rugby sweatshirts signifying the year Brooks Bros. was founded; lambs-wool sweaters with red trim and rugby stripes on one arm; jackets in patchwork herringbone fabrics; shorter toggle coats, and snug cable dresses cut seven inches above the knee.

<WWD>

Hedgeye Retail’s Take:  Clearly looking to spark growth in the heritage brand, Brooks Brothers is both contemporizing its offering as well as expanding distribution via Nordstrom.  While the classic American look has been working for a couple of years now, we note that recent runway shows suggest the trend is still very much alive.

 

Edward Lampert Moves In on Gap - Enigmatic financier Edward S. Lampert has moved in on Gap Inc., taking a 5.8 percent stake that he could ultimately use to agitate for changes at the specialty retailer. As of Feb. 3, Lampert, who orchestrated the combination of Sears and Kmart and serves as chairman of Sears Holdings Corp., had scooped up 35 million shares of Gap Inc. through various investment vehicles, including his ESL Investors hedge fund. Word of the investment — which was disclosed in a Securities and Exchange Commission filing late Monday — pushed shares of Gap up 6.1 percent to $22.78 Tuesday, putting the value of Lampert’s investment at just short of $800 million. About 21 million Gap shares traded hands, more than twice the usual number. Shares of Sears, on the other hand, dipped 1.2 percent to $88.24. <WWD>

Hedgeye Retail’s Take:  Agitation perhaps but the key to any major ownership changes still lies in the hands of the Fisher family.  Given that product/merchandising/marketing is not the strong point of SHLD we wonder what synergies, if any, really exist between these market share losing brands.

 

American Apparel Gets Third Extension - American Apparel Inc. has won itself a third extension of the deadline to show that it is in compliance with its loan agreement with Lion Capital. The Los Angeles-based manufacturer-retailer of trendy basics now has until the end of the day Thursday to show that its earnings before interest, taxes, depreciation and amortization, EBITDA, for the past 12 months is at least $20 million, as required by the Lion agreement. Failure to comply with the covenant could result in the immediate calling of its loans and a possible trip to bankruptcy court. Initially set to kick in on Jan. 31, the provision was at first extended until the end of the day Feb. 10 and then again through Feb. 14.  <WWD>

Hedgeye Retail’s Take: Border’s managed to stay around much longer than most probably expected…and so will American Apparel.  However, we do wonder what happens when prices skyrocket at retail this year on the company’s mostly cotton-based goods.

 

Under Armour Introduces 'Innovation Lab' - Under Armour Inc. unveiled its "Innovation Lab" on at its Tide Point headquarters in Locust Point, according to the Baltimore Business Journal. On hand for Tuesday's ribbon-cutting were CEO Kevin Plank along with Baltimore Mayor Stephanie Rawlings-Blake and other city and state officials. Georges St-Pierre, a mixed martial arts fighter endorsed by Under Armour, also attended the event.  The lab allows Under Armour to design, test, and modify new apparel and footwear without having to send the products off-site. Featuring an OptiTrack motion capture camera, environmental chamber, high speed camera, and materials testing lab, the space will test products like Under Armour's latest product, the e39.

 <SportsOneSource>

Hedgeye Retail’s Take: It’s no surprise that just weeks after the company purchased the 400,000 sq. ft. Tide Point complex, it’s now taking steps to transform it into a corporate campus fit for a leading athletic brand. After sending executives across the country to study other innovative campus’ expect more unveilings to be forthcoming.

 

MoC Announces Export Incentives for Indian Products - India has announced to introduce export incentives for more than 600 products in sectors covering agriculture, chemicals, carpets, engineering, electronics and plastics, to enhance competitiveness. The country’s minister of commerce and industry Anand Sharma said that India aims to achieve export target of US $ 200 billion this year. With export growth of 25% per annum, the country’s exports will be doubled by 2014. <FashionNetAsia>

Hedgeye Retail’s Take: Incentivizing growth isn’t a novel strategy, but one that’s critical if the country expects to double exports in 4-years. For perspective, India is currently the 16th largest global exporter and getting to $400Bn would place it at around #10 – still a far cry from the top three (China, Germany, and the U.S.) that export $1.3-$1.5Tn annually.

 

 


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.”

read more

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.

read more

Cartoon of the Day: Crash Test Bear

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

read more

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.

read more

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

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

read more

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.

read more

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."

read more

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.

read more

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."

read more

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.

read more

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.

read more

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.

read more