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R3: REQUIRED RETAIL READING

February 24, 2010

 

RESEARCH ANECDOTES   

  • DLTR noted that the weather had an impact on the company’s quarterly sales results, but that sales momentum picked up with more normal weather patterns.  Additionally, management noted that Valentine’s week was the best sales performance in the company’s history.  Overall February is off to a strong start.
  • Saks noted that the company sold about 70% of its merchandise at full-price in 2010, which takes the selling levels at or slightly higher than pre-recession percentages. 
  • TJX noted that while inventory levels have been down across all divisions over the past couple of years, the bigger changes have come from the company’s smaller divisions.  While still cautious on taking meaningful amounts of inventory out of Marmaxx, it is for this reason that management believes there are still opportunities ahead to improve corporate turns.
  • Contrary to HD’s strong performance in appliances over Black Friday, Lowe’s chose to not be as promotional.  As a result, appliances comped “just above” the overall result of a 1.1% increase.  HD appliance comps increased by double digits in November and added 120 bps to the company’s overall comp in the quarter. 

OUR TAKE ON OVERNIGHT NEWS

Nike Unveils Mega-Logistics Center in China - Nike Inc. on Tuesday unveiled its biggest logistics center in Asia in Jiangsu province. The new 200,000 square meter facility is on target to be the first LEED (Leadership in Energy and Environmental Design Green Building Rating System) accredited warehouse complex in China. Construction of the facility generated 1,800 jobs and is expected to provide up to 1,500 permanent jobs by 2015. The 200,000 square-meter center in the city of Taicang, Jiangsu province, is the company's first such facility in China and the sixth worldwide, after centers in Belgium, Canada, Japan, South Korea and the U.S. <SportsOneSource>

Hedgeye Retail’s Take: China remains a key bogey for Nike particularly after reporting flat sales in the region in F10. This center is not a game changer alone, but will certainly help the company further penetrate not only the Chinese but arguably the Japanese market as well over intermediate-term.

Joe Fresh Opens Flagship in New York City - Joe Fresh, an apparel brand sold in Canadian supermarkets, will open a 15,000- to 20,000-square-foot flagship at 510 Fifth Avenue here this fall. The value-driven fashion brand is owned by Loblaw, a chain with more than 1,000 locations. It was created five years ago by Joseph Mimran, founder of Joseph Mimran & Assoc., who launched Club Monaco in 1985 and sold it to Polo Ralph Lauren in 1999. Joe Fresh is sold in 330 Loblaw’s and Real Canadian Superstores. The brand opened its first freestanding store in Vancouver in October and four more stand-alone units are slated for this year. Mimran said he plans to open 30 to 50 additional stores. <WWD>

Hedgeye Retail’s Take: The newest fast-fashion concept enters the domestic market with what could be considered perfect timing as higher prices begin to crimp unit consumption. In addition, as the U.S. consumer shifts toward greater value product, the lack of fashionable competition may get Joe Fresh noticed in a hurry.

Keds Entering Sportswear - Keds, the nearly 100-year-old footwear brand owned by Collective Brands Inc., has enlisted the help of sourcing powerhouse Li & Fung to break into the apparel market for spring 2012 with its own take on classic American sportswear.  The line, which will include a broad range of men’s and women’s looks, will cater to Millennials, who are mostly in their 20s. Under the licensing agreement, Keds and the Regatta team at Li & Fung’s LF USA division will develop the collection. Li & Fung will be responsible for marketing and sales to boutiques and better department stores across the U.S.  The casual line will launch with a limited edition collection and expand into more complete offerings in 2012. Keds plans to take a measured approach, setting up a business that can last decades.  <WWD>

Hedgeye Retail’s Take: Regatta, known for its proprietary brand development, is a not only an opportunity to expand the Keds brand, but also leverage the store footprint at Sperry. Management has highlighted their interest in collaborating with an apparel brand to enhance the presentation of an expanded portfolio – they’ll now have an opportunity to cross market the brands.

Best Buy Closes Stores in China and Turkey - Best Buy, the world’s largest electronics retailer by sales, is closing all of its branded stores in China, highlighting the resistance of Chinese shoppers to some western-style store experiences.  The retailer, which will continue to run 170 stores in China under the Five Star brand acquired five years ago, is also giving up an attempt to enter Turkey, with the closure of two trial-run stores opened in the past two years. The company said in a statement it would close all nine China stores that carry the Best Buy brand, one of the best-known US retail marques, but one that has failed to catch on in China. It captured less than 1 per cent of the China market, analysts said, struggling to compete against the more agile and aggressive homegrown rivals Gome and Suning, which each have more than 1,000 branded stores in China.  <FinancialTimes>

Hedgeye Retail’s Take: BBY’s failure to penetrate the Chinese market may be more an indication of the commodity-like nature of the electronics market than domestic brand preference, but it’s noteworthy nonetheless for the many other domestic brands looking to make concerted efforts to gain share overseas in 2011.

Facebook Reaches Majority of US Web Users - As Facebook continues to solidify its role as the world’s top social networking site, eMarketer estimates that more than half of internet users in the US were logging on to the site at least monthly as of the end of 2010. This year, eMarketer forecasts, 132.5 million US web users will use the site. That increase of 13.4% in the number of users means Facebook will reach almost nine in 10 social network users and 57.1% of internet users. By 2013, 62% of web users and almost half (47.6%) of the overall US population will be on Facebook. <eMarketer>

Hedgeye Retail’s Take: 50%+ penetration of all internet users is simply astounding and a rate the company will surely look to leverage when it looks to go public.

R3: TJX, SKS, DLTR, LOW - R3 2 24 11

 

Lady’s shoes rise 20% in price in China- Retail prices of lady’s shoes increased by 20% during the spring season in Shanxi province, China, sources reported.  Hiking production cost is the major reason for the price increase, according to a local shoe producer. For example, leather prices have risen by 20% over the last two consecutive years, coupled with surging labour costs. Meanwhile, shoes for ladies are made of leather and accessories of higher quality, and therefore they cost more in terms of processing, design and materials in order to met the consumer demand. <FashionNetAsia>

Hedgeye Retail’s Take: A comeback for “pleather” in 2011 perhaps?