R3: GPS, KR, FDO, DECK

R3: REQUIRED RETAIL READING

March 4, 2011

 

 

 

RESEARCH ANECDOTES 

  • Zappos (6), Nordstrom (74), Men’s Wearhouse (87), and Aeropostale (94) are all retailers that made Fortune’s 2011 list of best companies to work for.  Number one overall was software firm SAS.
  • Keep an eye on Gap’s efforts to engage in new and creative promotional strategies.  This weekend the company will host its first “flash” sale which they are calling “Flashion”.  The 24-hour only sale focuses on just one item – a woman’s trench coat on sale for $50 (original price $89.95).  Probably not a needle mover but still something different from a coupon.
  • Kroger noted that overall inflation in the company’s 4Q was about 2.3%, driven primarily by higher meat costs.  In grocery inflation measured 1%, which marks the first inflationary quarter for the category after six quarters of deflation. 

OUR TAKE ON OVERNIGHT NEWS

 

Family Dollar Rejects Buyout, Adopts Poison Pill - rejected a hostile takeover offer from Nelson Peltz’s Trian Fund Management LP, saying it “substantially” undervalues its business, and adopted a defense to discourage unsolicited offers.  A plan outlined last year to accelerate store openings and remodelings, and to repurchase shares, is the best way to deliver value to shareholders, the Matthews, North Carolina- based discount retailer said today in a statement.  Family Dollar shares had fallen seven of the ten days since Trian’s offer Feb. 15, through yesterday, signaling investors were skeptical about the bid of $55 to $60 a share, or as much as $7.7 billion. Peltz, an activist investor who rarely buys entire companies, hadn’t arranged financing for what would be the biggest acquisition of a U.S. retailer in six years.  <Bloomberg>

Hedgeye Retail’s Take:  Take a look at today’s NY Post article for further insights into the company’s brewing battle with Peltz.  The article suggests FDO’s CEO was not amused to hear from Peltz just 15 minutes before Trian’s filing hit the tape.

 

Ugg Australia to Launch Luxe Collection - Ugg Australia is exploring life beyond the shearling-clad Outback with the launch of “rugged luxury” line Ugg Collection.  Ugg Collection by Ugg Australia is a 30-piece line of handbags and shoes, sourced in Italy, being introduced for fall. The collection has an earthy palette of olive green, black and tan, with pops of royal blue and leopard. Handbag silhouettes include the side-strap satchel, a slouchy hobo and an oversize weekender bag, in Italian Toscana leather, sheepskin, merino, suede and pony hair. Ugg Collection footwear was designed to harness the comfort of Ugg Australia in more upscale designs, with booties, stacked wedges and knee-high leather boots.  “A lot of our customers carry their designer handbag with the [Ugg Australia] classic boot, so we thought, Let’s give them something else that they can wear and still feel good [in],” said Leah Larson, vice president of product for Ugg Australia. “We’ve been known for quality, and we took that and put it into a couture fashion line.”  <WWD>

Hedgeye Retail’s Take:  Not the first time the company has looked to move into accessories in a bigger way, this effort appears to be far more likely to succeed.  Still only a small part of the business, the Luxe collection should in theory provide a fashion umbrella for which the more mainstream products will benefit. 

 

JJB Seeks Rent Cuts  in CVA- JJB Sports set out the details of its company voluntary agreement (CVA). Under the plan, the U.K. sporting goods retailer intends to shut 43 stores on or before April 24 2012 while keeping another 46 under review until the same date in 2013. The retailer will also pay landlords 50% of the contractual pro rata monthly rent ahead of closure and other sums. JJB will make a further payment of between £2.5m and £7.5m in cash or shares to landlords 'compromised' by the CVA. The exact amount will be linked to the company's market performance. All of JJB's stores will also move to monthly rents for the next two years. The CVA must be approved by creditors and shareholders at meetings on March 22. JJB chairman Mike McTighe said: "JJB's restructuring plan is on track. Last week we completed the first capital raising to provide short term finance for the group and delivered our revised business plan to Bank of Scotland. <SportsOneSource>

Hedgeye Retail’s Take:  JJB has long been “challenged”  making the company’s CVA seem like a long shot towards a profitable recovery.  With no buyer however, this is the only option left before more dramatic measures. 

 

Feldenkreises to Sell Shares of Perry Ellis - The Feldenkreises are set to cash in $16 million of their Perry Ellis International Inc. stock in a offering that was priced at $28 a share Thursday. George Feldenkreis, chairman and chief executive officer, and his son, Oscar Feldenkreis, vice chairman, president and chief operating officer, each registered to sell 300,000 shares of the firm, according to a filing with the Securities and Exchange Commission. After the underwriting discount, the sale of each share will reap proceeds of $26.60  <WWD>

Hedgeye Retail’s Take:  After a substantial run in which PERY shares went from $4 in early ’09 to $28 in 2011 it’s hard to fault the “family” for taking some money off the table. 

 

Tom Ford Renews Eyewear Agreement - Tom Ford International is set to take its eyewear to the next level. The American designer and Marcolin Group said Thursday they have renewed their current licensing agreement for the design, production and worldwide distribution of Tom Ford optical frames and sunglasses through December 2022. The original agreement was signed in 2005. Maurizio Marcolin, style and licensing director for the Marcolin Group, said the contract was renewed well ahead of its expiration date in 2015 because of the brand’s strong sales since the products were introduced in October 2005 and the desire on both sides to plan long term. <WWD>

Hedgeye Retail’s Take:  One of the most iconic Tom Ford branded products to date, it’s clear that this high-margin accessory is key to company’s growth strategy for many years to come. 

 

The Shopping Habits of Teens - Today’s teens have grown up with the internet, and their status as digital natives places them in the avant-garde of internet and technology use. eMarketer estimates that by the end of 2011, 96% of US teens ages 12 to 17 will use the internet at least monthly, significantly higher than the 74% penetration for the total US population. “The internet is not only fun, but is also indispensable for a host of tasks such as communicating, learning and shopping,” said Jared Jenks, eMarketer analyst and author of the new report, “Demographic Profile—Teens.” <eMarketer>

Hedgeye Retail’s Take: Near full saturation, an effective online presence is no longer an opportunity, but a necessity for teen retailers. Those who fail to keep pace will struggle to maintain/grow mindshare among this highly coveted demographic.

 

R3: GPS, KR, FDO, DECK - r3 3 4 11

 

Study Suggests Web Shoppers Browse more Before Buying - Online retailers are spending more on paid search ads to generate a purchase, which means they must sharpen up their bidding strategies, says search marketing firm NetElixir. Two facts lie behind the higher cost: Consumers are clicking on more paid search ads before making a purchase and the average cost per click was up 16% in January 2011 from January 2010, says NetElixir founder and CEO Udayan Bose. Bose says on average consumers clicked on 3.1 paid search ads before making a purchase in January 2011 versus 2.7 clicks in January 2009. They’re also taking more time to shop around—the time between the first click on a paid search ad and the purchase increased 12% in that two-year period. <InternetRetailer>

Hedgeye Retail’s Take: Simple supply and demand dynamics at play here given the growing U.S. consumer tendency to vet pricing more thoroughly online prior to actual purchase – however, with more comparative shopping sites surfacing we expect it unlikely to see the cost of paid search keep pace with growing online purchasing trends.