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April 5, 2011






  • In yet another sign that sporting goods retail stores are getting smaller, Modell’s announced the opening of its second sub-9,000 sq. ft. store in New Jersey following the company’s first in NYC last fall. While smaller than Sports Authority’s 12,000-15,000 sq. ft. S.A. Elite concept stores, the trend towards more convenient compact stores appears to be gaining traction.
  • Following speculation that he may be one of the front-runners to design Kate Middleton’s wedding dress, Erdem Moralioglu is also rumored to be the next collaboration for H&M. The designer’s namesake line, carried in roughly 50 high-end department stores and specialty shops in the U.K. and U.S. including Barney’s could be the next in a recent line of successful collaborations for the fast-fashion retailer. With the U.K. one of the few regions to post positive growth in H&M’s 1Q, we wouldn’t be surprised to see the company target the London-based designer.
  • After launching 6-months ago, Shoprunner – currently owned by GSI and soon to be sold by eBay has grown from a goal of 40 participating retailers by the end of 2010 to now having more than 70 among which is the recent addition of Dominos Pizza. Unlike the traditional free 2-day shipping, the restaurant/food retailer will offer members free shipping on all food orders.
  • In another sign that gun and ammunition sales continue to slow, Freedom Group Inc. the owner of Remington, Bushmaster and other firearm brands withdrew plans for its IPO. In addition to seeing its firearms segment sales down -24% in 2010 since filing in October 2009, the company’s former CEO left the firm in September further complicating plans to go public.



Wal-Mart Explores Selling Large Appliances - Wal-Mart Stores Inc. may begin adding large appliances such as stoves and dishwashers to stores in Texas this year as part of a pilot program that could lead to a nationwide launch. The retailer is looking at a program selling appliances from General Electric Co. and could roll out to more than 100 stores initially, according to analysts and consultants familiar with the retailer's plans. Last month, Wal-Mart's U.S. chief Bill Simon, speaking at an industry conference, said the company is "looking at everything including appliances right now." Mr. Simon didn't provide specifics about the scope other than saying: "If it's something that we believe there is customer demand for and an opportunity to make some money, we're going to get into it in a big way." A Wal-Mart spokesperson declined to provide details. A GE spokesman didn't respond to a request for comment. Budd Bugatch, retail analyst at Raymond James, said shoppers in Texas might expect to see 75 or more products in the appliance display areas that Wal-Mart is expected to set up, including major appliances such as stoves, washing machines and refrigerators.<WallstreetJournal>

Hedgeye Retail’s Take: Typically reserved for home improvement and electronics big-box retailers, appliances are one of the few categories that Wal-Mart hasn’t participated in – until now. Interestingly, a recent J.D. Power and Associates report revealed that when making big-ticket appliance purchases, a customer’s overall shopping experience was more important than the price itself when it came to price satisfaction. With WMT ranking not only below its direct peers Macy’s and Sears according to the American Customer Satisfaction Index, department and discount stores also rank lower than specialty retailers like Home Depot and Lowe’s that are key players in the appliance category. As such, expect WMT to be highly price competitive.


New Balance, Red Sox Strike Sponsorship Deal - New Balance has signed on to become the official footwear and apparel sponsor of the Boston Red Sox. The company has unveiled an illuminated sign featuring its logo on an HD videoboard in Fenway Park's right field. "From the outset, we knew this would be a special relationship. New Balance has consistently brought ideas to the table that demonstrate a shared commitment to adding value to important areas of our business, including our home, Fenway Park, and philanthropic efforts like the Run to Home Base," said Sam Kennedy, Executive Vice President/COO for the Boston Red Sox, in a written statement. "Today marks the beginning of a collaboration that brings two iconic Boston-based organizations together, and we couldn't be more excited." The New Balance sign will display a looped and flashing "we won" message to highlight Red Sox victories. <SportsOneSource>

Hedgeye Retail’s Take: Only days after signing Red Sox star Kevin Youkilis to an endorsement deal, the two historic Boston-based franchises finally unite. The notable increase in marketing spend not only supports the brand’s effort to gain share in the highly fragmented cleated business, but also stem Under Armour’s continued momentum in the space.


Overstock to Reward Customers in States Where it Cut off Affiliates - Hoping to turn its opposition to online sales taxes into increased customer loyalty, Overstock.com announced today a plan to shift money from affiliate programs shuttered because of newly enacted sales tax laws to consumers taking part in the e-retailer’s Club O rewards program. The promotion applies to online shoppers in the states of Illinois, New York, North Carolina and Rhode Island. Each state has enacted laws that require Internet retailers to collect state taxes if they work with in-state affiliates, which are web site operators that provide links to products sold by web merchants and then receive commissions on those sales. State officials say affiliates constitute an online retailer’s physical presence in a state, satisfying a legal requirement that lets the state require online retailers to collect the taxes. Overstock calls such laws unconstitutional and, along with Amazon.com, has cut ties with affiliates in states that have enacted the tax laws. “We have decided to sever our relationships with thousands of marketing affiliates in those states, take the money we would normally pay those affiliates, and use it to reward our best customers in those states,” says Patrick Byrne, CEO of Overstock, which is No. 28 in the Internet Retailer Top 500 Guide. <InternetRetailer>

Hedgeye Retail’s Take: Stepping up in opposition of what has been dubbed the “Amazon Tax” in Arkansas (see below), Overstock is adopting what appears to be a win/win strategy. With the likelihood that legislation requiring online retailers to collect taxes will pass, the company is utilizing rewards to strengthen ties with its customer base, something that will be remembered if/when online retailers are forced to collect.


Arkansas Newest State to Ready an “Amazon Tax” LawThe Arkansas General Assembly has passed and sent to Gov. Mike Beebe a bill that would require Internet retailers to collect sales tax if they accept referrals from affiliate web sites and do more than $10,000 a year in sales in Arkansas. Beebe, a Democrat, supports the legislation and is expected to sign it soon, a spokesman says. Once SB 738, which is referred to in Arkansas as the both Amazon Tax law as well as the Main Street Fairness law, is signed into law, Arkansas will become the fifth state to enact such legislation, joining New York, North Carolina, Rhode Island and, most recently, Illinois, according to Daniel Schibley, a state and local tax analyst at CCH Inc., a unit of Wolters Kluwer that publishes tax and business information<InternetRetailer>

Hedgeye Retail’s Take: The swell continues to grow at the state level. While the AMZN and OSTK continue to put up a good fight, gravity is inevitable.


Under Armour Secures Loan for Office Complex Acquisition - Under Armour, Inc. has entered into a credit agreement covering a total loan commitment of $325 million comprised of a revolving credit facility commitment of $300 million and a term loan commitment of $25 million. The company anticipates using a term loan of up to $25 million to finance a portion of the purchase price for the previously announced acquisition by the company of part of the office complex at the company's corporate headquarters.  The credit agreement replaces the company's existing $200 million revolving credit facility and has a term of four years, according to a filing with the Securities & Exchange Commission. The term loan commitment expires May 29, 2011. Subject to certain conditions, the acquisition is expected to close by that date. The $300 million revolving credit commitment amount under the credit facility may be increased to up to $350 million, subject to certain conditions and approvals as set forth in the Credit Agreement.  <SportsOneSource>

Hedgeye Retail’s Take: With nearly 50% of the property still leased by tenants, the acquisition of the company’s new headquarters is expected to be a cash flow neutral. That said, the new facility is also at more favorable rates at LIBOR (no floor) + (1.25%-1.75%) compared to the prior facility at LIBOR (subject to a floor of 1.25%) + (2.0%-2.5%).


Puig in Talks to Buy Gaultier Stake - As Parisian as the Eiffel Tower, Jean Paul Gaultier might soon become a Spanish-controlled company. According to market sources, Puig — the Barcelona-based parent of Carolina Herrera, Nina Ricci and Paco Rabanne — has entered into exclusive negotiations to acquire the 45 percent stake in Gaultier owned by Hermès International. It is understood Puig will also purchase some shares from Gaultier himself, which would give the Spanish beauty giant majority ownership of a landmark French house — and instantly make it a bigger player in the fashion world. Gaultier, 58, is expected to retain a significant stake in the company he founded in 1982, and remain at the creative helm. As reported, Hermès said Friday it had initiated discussions to sell its shares in Gaultier, without identifying the potential buyers. The maker of Birkin bags and silk scarves declined all comment on Monday, as did a spokeswoman for Gaultier. <WWD>

Hedgeye Retail’s Take: As a follow up to news of the sale out last week, it appears that Hermes is not struggling to find interest for the coveted fashion house.