R3: SHLD, VLCM, BGFV, Next Plc



May 4, 2011






  • In addition to sighting macroeconomic weakness as the key governor of growth in the quarter, management of BGFV also highlighted a factor that we expect to hear more frequently over the next 24-hours – weather. With more than 50% of its stores in the two states with the highest unemployment (CA & NV) and 90% of stores in states above the national average, BGFV has an obvious handicap relative to its competitors. Additionally, while both apparel and footwear sales were positive in the quarter, hard goods were not. As a result, the company plans to get more aggressive on pricing in the current quarter – not what better performing competitors want to hear.
  • While Volcom’s footwear category has been non-existent (i.e. less than 2% of sales), PPR highlighted the opportunity to build the category given Puma’s core competency. In fact, PPR has already carved out several members of Puma’s team to work with Volcom’s design team. The process from start to finish takes at couple years at minimum, but expect innovation in the highly fragmented skate market to pickup over the next 12-24 months as incumbent players look to maintain share.



Sears Eyes Apparel Rejig - Even as Sears Holdings Corp. aims to lure back apparel shoppers, the retail behemoth wants to scale back the space devoted to the category. “We have, in my opinion, way too much space for the amount of apparel business we do,” Sears chairman Edward S. Lampert told shareholders Tuesday at the firm’s annual general meeting at its headquarters here. “We have a lot of space dedicated to apparel that’s been underutilized for too long. No matter how good our apparel people do, we cannot get to the level of productivity we should be at simply by working harder. It is incumbent on us to repurpose that space. “We are in the best malls in the U.S.,” he added. “If we want our customers and the community to shop at our end of the mall, then we need to have the brands they want to shop for. If they don’t want to buy what we sell, or buy enough of what we sell and there are other companies that can fit in and do it better, why shouldn’t we partner with them (on leases). We think we can partner with a whole lot of companies.” <WWD>

Hedgeye Retail’s Take: With Sears struggling to maintain share in categories like appliances, it makes sense for the department store to focus on one of the few positive drivers of comp in 2010 at both Kmart and domestic Sears – apparel. The Kardashian Kollection launch in August was a material step in that direction and based on the highlights from the meeting it sounds like we should expect more exclusive brand initiatives from the company in coming months. But don’t forget that Sears holds about 2-3% of the US apparel market. Simply tweaking brands won’t right this ship.


Next PLC Gets Royal Boost - Retail group Next plc raised its full-year profit guidance by £15m following sales ahead of market expectations in the first quarter. Next Brand sales in the period to end-April were up by 5.2%, compared with guidance for the half-year given in March of between -0.5% and +2.5%. The group said it estimated that at least 2.5% of the over-performance came as a result of exceptionally warm weather over Easter and spending in anticipation of the Royal Wedding bank holiday. It said, 'We believe these factors have encouraged consumers to bring forward summer purchases and we do not expect the current levels of growth to continue into the second quarter.' <Spectator.co.uk>

Hedgeye Retail’s Take: Interesting callout here from the UK’s second largest retailer that while weather has devastated U.S. retailers over the last two months it’s been a tailwind across the pond in addition to among other events both Easter and of course the Royal Wedding.


Puig Acquires Majority Stake in Jean Paul Gaultier - “Twelve points for Spain,” Jean Paul Gaultier, who is crazy about the annual Eurovision Song Contest, enthused on Tuesday, awarding the maximum appreciation to Puig, the new majority owner of his Parisian fashion house. The Barcelona-based beauty and fashion firm purchased the 45 percent of Gaultier held by Hermès International and roughly 15 percent from the founding couturier, giving the ebullient designer a new lease on life and making Puig — parent of Nina Ricci, Carolina Herrera and Paco Rabanne — a bigger and more formidable player on the international fashion scene. Come mid-2016, Puig will also get its hands on Gaultier’s lucrative fragrance license, currently held by Beauté Prestige International, a subsidiary of Japan’s Shiseido. WWD first reported Puig was in exclusive negotiations to acquire Gaultier on April 5. “I am thrilled,” Gaultier told WWD. “They’re nice people; they have a lot of energy. It’s a family business. They know what they want to achieve and they are buying Gaultier for Gaultier, not to turn it into something else.” <WWD>

Hedgeye Retail’s Take: Looks like a win for both sides – at least from a strategic perspective. Hermes relationship with the brand was severed with the passing of its former Chairman and Puig is starting to build a formidable stable of designers. In looking at another design house up for sale, we suspect Cardin’s process is not likely to be quite as smooth given the complexity of the deal as highlighted yesterday.


Retailers Increasing Mobile And Social Efforts - According to "The State Of Retailing Online 2011: Marketing, Social, and Mobile" report conducted by Forrester Research Inc. for Shop.org, 91 percent of retailers currently have a mobile strategy in place or in development (up from 74 percent a year ago). Additionally, 72 percent of retailers say they will increase their spending on social networks this year over last year. "The State Of Retailing Online" research series, which provides eBusiness & Channel Strategy Professionals with annual industry benchmarks of marketing and business investment and activities, surveyed 68 companies. Retailers report that 21 percent of all mobile traffic is coming from tablets, amazing considering the iPad was launched barely a year ago. Still, the overall amount of mobile traffic and revenue has not increased dramatically, suggesting that investment levels in site optimization may still be inadequate. For example, 48 percent of retailers report having a mobile-optimized website; 35 percent have deployed an iPhone app; and 15 percent offer an Android app and an iPad app, respectively. Challenges for retailers include differentiating the consumer experience on a tablet versus a smartphone and figuring out features and functionality in dueling app/mobile Web ecosystems. <SportsOneSource>

Hedgeye Retail’s Take: In reality a tablet is simply the current day notebook so call it what you want, but the key highlight here is that less than 50% of retailers have a site optimized for mobile viewing. This is clearly a case where less is better than none at all. Also, 72% of retailers will grow spending on mobile networking yy.  Why isn’t it closer to 100%?


Vietnam Plans big for Footwear and Leather Sector - Despite the surging overhead costs, Vietnam has drawn up big plans for its leather and footwear industries, both of which will be a national key export in 2020, according to a new development plan published by the Ministry of Industry and Trade (MoIT). By 2015, the ministry is estimated to earn US$9.1 billion in export turnover. MoIT hopes the turnover will increase to $14.5 billion in 2020 and $21 billion in 2025. Meanwhile, the ministry aims for localisation to be 60-65 percent in 2015, 75-80 percent in 2020 and 80-85 percent in 2025. During this time, the industry will focus on developing designs, products and their human resources sector. <FashionNetAsia>

Hedgeye Retail’s Take: The key beneficiary of higher labor costs in China, the surge in demand as brands look to shift to neighboring countries is a watershed event for Vietnam, whether they can develop their infrastructure fast enough to handle it is another issue.




Cartoon of the Day: Hard-Headed Bears

How's this for "hard data"? So far, 107 of 497 S&P 500 companies have reported aggregate sales and earnings growth of 4.4% and 13.2% respectively.

read more

Premium insight

McCullough [Uncensored]: When People Say ‘Everyone is Bullish, That’s Bulls@#t’

“You wonder why the performance of the hedge fund indices is so horrendous,” says Hedgeye CEO Keith McCullough, “they’re all doing the same thing, after the market moves. You shouldn’t be paid for that.”

read more

SECTOR SPOTLIGHT Replay | Healthcare Analyst Tom Tobin Today at 2:30PM ET

Tune in to this edition of Sector Spotlight with Healthcare analyst Tom Tobin and Healthcare Policy analyst Emily Evans.

read more

Ouchy!! Wall Street Consensus Hit By Epic Short Squeeze

In the latest example of what not to do with your portfolio, we have Wall Street consensus positioning...

read more

Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more

6 Charts: The French Election, Nasdaq All-Time Highs & An Earnings Scorecard

We've been telling investors for some time that global growth is picking up, get long stocks.

read more

Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more