R3: SHLD, AMZN/AT&T, PPR

OUR TAKE ON OVERNIGHT NEWS

   

SHLD’s Negative Preannouncement - Sales at stores open at least a year declined 3.6 percent in the quarter ended April 30, the Hoffman Estates, Illinois- based company said yesterday in a statement. The first-quarter loss will be $1.35 to $1.81, compared with the 3-cent profit predicted on average by analysts surveyed by Bloomberg. <Bloomberg>

Hedgeye Retail’s Take:  Interesting how weak appliance sales coincide with such a dramatic boost in North American shipments up +4% at Whirlpool in its 1Q11 release. Note that Wal-Mart is getting into the large appliance business, a key initiative this year at Best Buy (#4 player in the space) is to grow its appliance business, and Lowes ramped opportunistic appliance purchases after sighting the category as an outperformer on its year-end call.

Amazon to Launch Flash-Sale Site - Amazon.com, the $34 billion global Web giant, will today muscle its way into the flash-sale craze with the launch of a members-only Web site called Myhabit. The project has been a year in the making, sources said, starting with building a team in New York that pulled some key executives from the merchant and tech ranks at Amazon’s Seattle headquarters, then developing the site and moving into test mode. The New York team of 40 includes buyers, planners and editorial staff. The site will offer up to 60 percent off men’s, women’s, children’s, footwear, accessories, jewelry and outerwear, in what’s described as “a head to heel” offering. Doo.Ri, Badgley Mischka, Kenneth Jay Lane jewelry, I.Am.Clothing men’s wear and BedStu shoes are part of the opening day sales lineup. Four to six flash sales daily, and up to 40 events weekly across the different categories and genders are planned. They will start at noon Eastern Standard Time and typically last for 72 hours to create a sense of shopping urgency and limited availability. <WWD>

Hedgeye Retail’s Take: It's neither the first flash-sale site concept nor unique as several others offer head-to-toe product selection and over a 72-hour period, but unlike many of its competitors in the space, Amazon already has most (if not all) of the inventory it plans to sell – this is what differentiates it from others. Not only could this improve the quality of product it ultimately sells through the site, but it could also prove to be a valuable channel in which to clear excess inventory.

 

Also, Add AT&T to the latest list of competitors to join the fray of daily deal/flash-sale sites. In an effort to penetrate what has quickly become a crowded sub-segment in retail, AT&T is offering consumers a $10 credit towards their first purchase for signing up before May 22nd, which also likely tips the company’s hand as to when the site will go live.

 

PPR Acquires Volcom for $607.5M - With the announcement that PPR has made a friendly $607.5 million takeover bid for Californian action sports brand Volcom Inc., luxury mogul François-Henri Pinault kicked off the long-awaited acquisitions process aimed at building a mass-market division around Puma that could eventually eclipse its luxury holdings like Gucci.  The French retail-to-luxury group will make a cash tender offer for 100 percent of Costa Mesa-based Volcom of $24.50 a share, which represents a premium of 37 percent over Volcom’s three-month average share price.  In New York City for Monday night’s Costume Institute gala, of which he was an honorary chair alongside his actress wife Salma Hayek, Pinault said he had picked Volcom for its expertise in three key action sports areas: surf, skate and snow. “I’m in New York for two days for the Met ball. I might be on a beach in Hawaii or in Biarritz for the next surf competition, why not? I’m not always wearing suits, I have boardshorts,” the PPR chairman and chief executive officer laughed in a telephone interview with WWD. <WWD>

Hedgeye Retail’s Take: Adding to its stable of Lifestyle brands, which had only consisted of Puma prior to this deal, we can’t help but question both the timing and price that PPR is paying at north of 13x projected 2011 EBITDA. In hindsight, it’s $2.5Bn purchase of a 63% stake in Puma back in ’07 at 12x EBITDA when the enterprise value was more than 2x where it is today was not particularly well timed (or priced) either.

 

Pierre Cardin Looks to Sell - After more than six decades in fashion, designer Pierre Cardin is hanging the "for sale" sign in his shop window. At 88 years old, Mr. Cardin says he wants to sell his business to ensure it outlives him. "I want to sell it now," Mr. Cardin said in an interview in his corner office overlooking the French presidential palace. "I know I won't be here in a few years and the business needs to continue." French fashion designer Pierre Cardin, September 2010. At 88 years old, Mr. Cardin says he wants to sell his business to ensure it outlives him. His timing is fortuitous. Ever since luxury-goods giant LVMH Moet Hennessy Louis Vuitton paid richly for Italian jeweler Bulgari SpA in March, valuations of fashion houses have been on the rise. The industry is entering an acquisitive phase for the first time in a decade. Now, other smaller houses such as Jean-Paul Gaultier are also shopping around for investors. The price Mr. Cardin wants — €1 billion, or $1.46 billion— is a stretch, industry watchers say. <WallstreetJournal>

Hedgeye Retail’s Take: This brand is a little more complex than most with a reported 600+ licenses worldwide. Not only does this make the brand’s aggregate sales difficult to decipher and ultimately Cardin’s valuation easily justifiable, but it also means any potential buyer will have less direct control of brand marketing and distribution than most are likely willing to sacrifice. That said, cleaning up a messy license network is how Ralph Lauren created the most value over the past decade. This will be interesting to watch.

 

Prada forges Joint Venture to tap into Middle East - Italy luxury fashion group Prada has inked a joint venture agreement with the UAE-based Al Tayer Insignia LLC to distribute its Prada and Miu Miu brands in five middle-east countries, sources reported. Based in Dubai, the joint venture will build a network of retail shops to distribute Prada products in the UAE, Saudi Arabia, Oman, Bahrain and Kuwait.  In March, Prada applied to carry out a listing in the Hong Kong exchange, thereby valuing the company at around €8 billion or US $11 billion. <FashionNetAsia>

Hedgeye Retail’s Take: Broadening distribution ahead of its forthcoming sale or IPO only adds to Prada’s enterprise value. Net/net, this makes perfect sense.

 

Textile Task Force Targets Import Fraud - U.S. Customs & Border Protection, Mexican Customs and the National Council of Textile Organizations are collaborating in a textile task force to crack down on import fraud, a growing problem that threatens the domestic textile industry’s nascent recovery. Industry executives said the fraud is carried out primarily when foreign manufactures use phony affidavits — often copies of certificates — from legitimate U.S. textile companies to falsify that their yarn or denim fabric was made in the U.S. when it was actually produced in China or other countries. That allows them to take advantage of duty free benefits under U.S. trade pacts such as the Central American Free Trade Agreement and the North American Free Trade Agreement. <WWD>

Hedgeye Retail’s Take: With a considerably more focused effort on combating counterfeit retail goods over the past year and meaningful improvements as a result, the next logical step is to work down the supply chain to include textiles. Given the lack of clear branding, or other identifiable indications of fraud, tracing the origin of textiles is likely to be a considerably more challenging task. It could very well include implementing a system not unlike currencies or personal I.D. such as licenses to confirm a documents authenticity, which would eventually be a target of its own counterfeiting. Ralph Lauren has been doing this for years. It is not very costly, and it works.

 

Sites That Send Shoppers What They Might Like - When Emily McNish shopped for jewelry online, she was overwhelmed by the options while searching for “gold necklace” on e-commerce sites or Google. Then she found a Web site called JewelMint that she lets shop for her.  JewelMint determined that Ms. McNish, 24, a university admissions counselor in Los Angeles, has “boho” style and likes big chunky jewelry. So on the first day of each month it offers her pieces that match her style. She has five days to choose a necklace, bracelet or ring. She pays $29.95 a month for that service. “It’s sort of like being part of a secret club,” Ms. McNish said.  JewelMint is one of a new breed of e-commerce sites — which also include Send the Trend, Shoe Dazzle, Just Fabulous, Sole Society and the upcoming StyleMint — combining old-fashioned and new-fangled methods for luring customers. <NewYorkTimes>

Hedgeye Retail’s Take: Better for conversion, but the trend is unsettling as its becoming more Big Brother by the day.