R3: JCG, AZO, PVH, and GPS

R3: REQUIRED RETAIL READING

March 2, 2011

 RESEARCH ANECDOTES

  •  Target’s expansion within NY’s five boroughs is likely to continue with the company picking up a 7.9 acres parcel of land in the Bronx.  The site is slated to include a 300,000 square foot mall along with a Target.  Given the size of the land it’s unlikely that this location will be part of the company’s smaller store test of CityTarget’s.
  •  According to the NRF/BigResearch 2011 Tax Returns Intentions and Actions Survey, 41.9% of respondents will pay down debt, 42.1% will increase savings, and 29.7% will put the cash towards everyday purchases.  The amount of consumers putting money into savings rose by 4% year over year while those planning to pay down debt slipped by 4.5%.  Approximately 63.9% of Americans have already filed their returns.
  •  Add AutoZone to the list of retailers noting that tax refunds (aka Refund Anticipation Loans) did not materialize at the same level as they have in prior years.  This had a negative impact on January results (along with weather) although management believes this will likely end up being a timing issue rather than a permanent reduction in cash flow for the company’s lower-income consumer.

 

OUR TAKE ON OVERNIGHT NEWS

 

Shareholders Approve J. Crew Buyout - Shareholders approved J. Crew Group Inc.’s $3 billion buyout by TPG Capital and Leonard Green & Partners by a better than three-to-one margin at a special meeting Tuesday. The acquisition faced opposition heading into the meeting. Some investors saw the price of $43.50 a share as inadequate and groused over the way chairman and chief executive officer Millard “Mickey” Drexler talked to the private equity firms about a deal before informing his board. Investor advisory firm Institutional Shareholder Services Inc. recommended stockholders vote against the deal. <WWD>

Hedgeye Retail’s Take:  Despite rumors that TPG/Leonard Green were contemplating a higher bid (competing against themselves) the soap-opera style saga surrounding this deal is now over.  It will be 3-5 years before the Street needs to brush off its earnings models on this specialty retailer for its next IPO.

 

Gap's Asian Expansion Moves Forward - Gap Inc. is continuing its international expansion drive, eyeing potential acquisitions, launching a Japanese e-commerce site and bringing the Old Navy chain here, according to John Ermatinger, Gap’s Asia Pacific president. Although the executive said the company’s main priority is developing its existing portfolio of brands, Gap is “always looking” at possible acquisitions. He said the company has already examined some companies in Asia, but the potential targets have either overlapped with Gap’s existing brands or turned out to not be for sale. <WWD>

Hedgeye Retail’s Take:  Interesting comments on acquisitions which would surely jumpstart the company’s Asian expansion efforts.  If anything were to transpire, we suspect a deal would be rather small in nature relative to the overall size of the corporation.  A content related purchase would also be high on the list.

 

PVH Gives Izod Watch License to Ritmo Mundo - Phillips-Van Heusen Corp. has licensed Ritmo Mundo to market and distribute a line of men’s and women’s watches under the Izod label in North America. The deal is for five years, with a three-year renewal option at PVH’s discretion.The sport-inspired Izod watches will debut at BaselWorld in Switzerland later this month. They will be distributed at major department stores and specialty stores throughout the U.S., Canada and Mexico. “We are very excited to partner with Ritmo Mundo — a highly respected luxury watchmaker,” said Allen Sirkin, president and chief operating officer of Phillips-Van Heusen. <WWD>

Hedgeye Retail’s Take:  While FOSL tends to garner a fair amount of the business in the licensed watch business, we’re reminded that there are still plenty of partners for which brands can develop partnerships with.  Don’t expect the IZOD watch biz to be a meaningful driver of sales or earnings.

 

New Balance Launches "Excellent" Campaign - New Balance debuted a new brand campaign designed to motivate and inspire active consumers to reach a new level of personal performance -  a new level of "Excellent."   The fully-integrated campaign launches a new tagline, "Let's Make Excellent Happen," and plans to aggressively leverage the voice of Team New Balance athletes to bring the brand's message to life. "This campaign is grounded in our running heritage yet reflects the innovation and passion of our brand, our products and our world-class athletes as we compete in today's marketplace," says Rob DeMartini, President and CEO at New Balance. The campaign's creative work includes TV, print, digital advertising, engagement in NB's on-line community, viral video content, in-store and event exposure. The cornerstone of the campaign is the "Pier 54" television spot. <SportsOneSource>

Hedgeye Retail’s Take:   Increased advertising=good for retailers like FL, FINL, and DKS.  Expect the new campaign to reinvigorate New Balance which has taken a bit of a backseat to both toning and more innovative running platforms from NIKE, Adi, and UA over the past several months.

 

Jeans Maker RGR to Close - A surge in cotton prices has forced the closure of Groupe RGR, a 38-year-old maker of denim sportswear for U.S. clients such as Gap Inc. and Tommy Hilfiger, and Lois jeans in Canada. The company will close five plants in July, affecting about 400 full-time female workers who will lose their jobs. “It’s the toughest decision I ever had to make in my life,” said Rolland Veilleux, co-founder and chief executive officer of RGR, based in St. Georges de Beauce, near Quebec City. “At the top in 2000, we employed 1,800 and operated 11 specialized plants working for top North American clients,” he said. “But we’ve had to fight mounting low-cost Asian competition for several years. Business has been declining steadily and we no longer have the volume.” <WWD>

Hedgeye Retail’s Take:   This may be one of the more extreme examples of what rising costs can do for textile manufacturers that are still operating with high cost infrastructures. 

 

Cotton Committee Forecasts Production Increase The International Cotton Advisory Committee on Tuesday projected that worldwide cotton production will increase 9 percent to 127 million bales in the 2011-2012 season, as farmers plant more in response to spiraling raw cotton prices and increased demand that has gripped the industry. On the Cotlook A index, cotton prices, which have created havoc in the apparel and textile industries’ pricing structures all the way through to retail, are expected to hover around $1.61 a pound in this new season, after hitting a record high of $2.33 a pound on Feb. 18, the committee said.  <WWD>

Hedgeye Retail’s Take: Not surprisingly demand leads supply which in turn leads to lower prices as supply increases.  The key issue here being that an entire growing cycle needs to transpire before we see prices come in materially.

 

Retailers Can Win over Negative Consumers   - Retailers can’t give up on consumers who post negative reviews or comments on social networks such as Facebook, Twitter or Yelp. Rather, by listening and responding to those complaints merchants can turn disgruntled shoppers into brand advocates, according to a new Harris Interactive report commissioned by RightNow Technologies Inc., which provides customer data and contact center technology. The report, which is based on a survey of 2,516 shoppers in January, found that many retailers are attempting to do just that. 68% of the consumers who posted a complaint or negative review said that they were contacted by the retailer. <InternetRetailer>

Hedgeye Retail’s Take:  Imagine a retailer actually caring what you think?  Simple customer service goes much further than simply low prices.  Expect to see the feedback loop continue to increase as social networks allow consumers to share their views/thoughts/complaints in real time.


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