• It's Here!

    Etf Pro

    Get the big financial market moves right, bullish or bearish with Hedgeye’s ETF Pro.

  • It's Here


    Identify global risks and opportunities with essential macro intel using Hedgeye’s Market Edges.


May 23, 2011






  • Calendar Watch: There are several investor conferences this week; including a ‘management access day.’ The usual characters will be participating.  We’re firm in our view that incremental margin news will be negative. The week ends with the Ira Sohn conference, where the hedge fund elite get to go and pitch their book. Do you think that Ackman just might pitch JC Penney a week after he was on the cover of Barron’s? This is a name we didn’t believe in his financial engineering at Target, and clearly don’t like it at JCP. This remains at the top of our list of shorts. See our note from Friday (JCP/TGT/GPS: Press the Call) for more details, as well as the reason for our newfound bullishness on TGT after being negative all year.
  • In a positive sign that one of management’s key initiatives is taking hold, the strongest comp gains at FL in the 1Q came in apparel up over 20%. While margins remain below footwear for now, the ramp in performance in the category is certainly notable. With little competitive distinction in footwear, the company is using apparel as a key differentiator at each of its banners such as Rocawear jeans at Footaction, technical product at Foot Locker, and licensed team apparel at Champs. While making progress here, there continues to be significant opportunity in apparel for FL that will provide an incremental boost to both top-line and margins.
  • Consistent with its peers, management of HIBB confirmed that they are beginning to see price increases coming through now in the 2Q. Footwear on the other hand, will not see increases until the 2H and then are going to be up MSD. Athletic footwear/SG retailers both expect to take pricing in select styles, typically premium product compared to broader-based increases. To date, management teams continue to be more concerned over cost inflation as it relates to 2012 than the balance of 2011.
  • Despite a sharp decline in toning sales in the 1Q, strength in running more than offset declines lead by the growing popularity of the lightweight category. Perhaps more notable is the fact that Shoe Carnival was able to post higher ASPs in the athletic footwear despite a 40%+ decline in toning shoe ASPs during the quarter. Also worth noting is the upcoming launch of SCVL’s e-commerce site in the 2H. While the company remains one of the few athletic retailers without a transactional site (HIBB is another), the company has been ramping its marketing spend to drive customers to its current platform where they can pre-shop product and print out discount coupons since BTS last year an effort that will help drive sales starting day one. While late to the party, the upside here is that the industry’s fastest growing channel will provide an incremental boost to the top-line when they’ll need it most.
  • A growing divide for product at ANN based on price is clearly evident in Q1 results. While sales below the key $50 price point at its LOFT concept accounted for 90% of sales in Q1 compared to 77% last year, the company noted that it can’t keep select novelty and suiting pieces in the store. To the extent price increases are expected to be taken in higher end items, fashion risk will elevate with less demand on mid-tier product.



Fortune Brands to Sell Titleist Golf Unit to Fila Korea - Fortune Brands Inc. (FO) agreed to sell its Titleist golf unit to a group led by the owner of the Fila sport apparel brand for $1.23 billion in cash, as part of its strategy to focus on liquor. Fortune Brands will realize proceeds of about $1.1 billion after taxes and expenses from the sale of the Acushnet business, which makes Titleist balls, according to a statement from the Deerfield, Illinois-based company. The deal is expected to close this year, it said. The sale is part of Fortune Brands Chief Executive Officer Bruce Carbonari’s plan to dispose of the company’s golf and home and security businesses by the fourth quarter. Fortune, the maker of Jim Beam and Maker’s Mark bourbon, Sauza tequila and Courvoisier cognac, said it plans to rename itself Beam. “This is obviously an important first step for Fortune,” said Jonathan Rouner, head of mergers and acquisitions for the Americas at Nomura Holdings Inc.  <Bloomberg>

Hedgeye Retail’s Take: The price came in in-line with what we expected to see for some of the best brands in golf as we highlighted in our 5/9 note (“Acushnet Bids Due Today”). The biggest callout here is that Adidas wasn’t the winning bidder – a positive for Nike – and that a Fila-lead consortium ended up victorious. Over the past year, Fila has taken material steps to becoming more relevant as a global player. The company launched its first basketball shoe in April of last year, then went public in the fall, and is now a major player in golf overnight. Given the popularity of golf in Korea, this is a great fit at what appears to be a good price for two of the most powerful brands in golf (Titleist and Foot Joy).


Labelux Group Acquires Jimmy Choo - Labelux Group, which on Sunday announced its purchase of Jimmy Choo, said the London-based brand has miles of unfulfilled potential —and nowhere more so than in Asia.The group, whose holdings including Bally, Derek Lam, Zagliani and Solange Azagury-Partridge, bought Choo from TowerBrook Capital LLP for an undisclosed price.  It beat competitors including TPG Capital and Jones Group Inc. in a deal sources say valued Choo at 549 million pounds, or $889.4 million. The sale to Labelux comes 10 years after private equity owners Equinox, under the guidance of industry investor Robert Bensoussan, first purchased Choo, valuing the company at 20 million pounds, or $32.4 million. Jimmy Choo has changed hands twice since then, its size, geographical reach and valuation spiraling each time. Labelux is Choo’s first industry, non-private equity, partner. All figures have been converted at current exchange. <WWD>

Hedgeye Retail’s Take: JNY’s shareholders should be thrilled that the company lost the bid. This was a disaster waiting to happen. Still, the fact that it likely bid something in the $700mm range is unsettling for a company with JNY’s cost structure and balance sheet.


PPR is in No Rush for Acquisitions - PPR, the parent of Puma, said it will take its time in deciding whether to buy and sell assets, with the focus being on creating value for the company. It recently reached an agreement to acquire skate and surf apparel group Volcom. Volcom will be the first brand outside Puma in PRR's new Sport & Lifestyle Group, which is being headed by former Puma CEO Jochen Zeitz.  The group is also currently selling some retail assets (catalog sales division Redcats and electronics retailer FNAC) while focusing on its luxury brands such as Gucci and and acquiring additional sports & lifestyle brands to join Puma. Speaking at PPR's annual shareholder meeting, CEO Francois-Henri Pinault noted: "We will take the time necessary to select brands to join us and to sell our retail activities under the best conditions." <SportsOneSource>

Hedgeye Retail’s Take: The first sign to suggest that PPR may actually take time to integrate its recent acquisitions. Hats off to ‘em. For shareholders’ sake, let’s hope they stick to it.


Brand Growth Key to J.C. Penney's Growth Strategy - J.C. Penney Co. Inc. thinks it can increase sales by focusing on accessories and jewelry in its stores’ “center core” and accelerating its rollout of branded shop-in-shops, said Myron “Mike” Ullman 3rd, president and chief executive officer, during the company’s annual meeting Friday at its headquarters here. “By enhancing the sense of discovery in our central core, there is a substantial upside, including increasing sales-per-square-foot and reinforcing J.C. Penney as a style destination,” he said. Call It Spring fashion footwear by Aldo Group and MNG by Mango boutiques will both extend to 500 doors by fall, Ullman said, up from 100 and 292, respectively. Sephora, with 254 locations now, will be in 305 stores by the end of January. Call It Spring and Sephora are both generating sales-per-square-foot about three times the company average of $210, a spokeswoman noted. In addition, the chain’s spring rollout of licensed Modern Bride jewelry collections to all 1,068 stores has spurred “strong gains” in the bridal business, Ullman noted. <WWD>

Hedgeye Retail’s Take: Mango and Sephora are critical initiatives for JCP, but the retailer isn’t the only one fighting for traffic. One of the key concerns here is the retailers’ ability to pass pricing through with a relatively smaller portion of premium branded product something Penney’s peers are likely to use to their advantage when it comes to drawing traffic in the 2H. More importantly, JCP’s locations and sheer box size mean that it needs to be viewed as a destination – ie incremental customers have to go out of their way to shop there. This takes real dollars to market and promote the brand. In other words, it is something that would likely make margins go down before they go up.


Macy’s Pushes Innovation Agenda - Risk-taking and retailing aren’t exactly kindred spirits. But for Macy’s Inc., the time is right to test new concepts and for “encouraging a higher level of risk-taking across all functions,” Terry Lundgren, Macy’s chairman, chief executive office and president, said. “We have to try new things — all kinds — and if one of them doesn’t work, that’s OK,” Lundgren said. During Macy’s annual meeting and press conference here Friday, Lundgren and other Macy’s executives outlined initiatives and tests in the works, in an effort to portray a culture of innovation at the $25 billion, 850-unit department store operator. Decades ago, Macy’s did have a reputation for innovation, with marketing extravaganzas like the Fourth of July fireworks and launching The Cellar in San Francisco in 1971, though the image was lost in the following years as the company got sidetracked by bankruptcy, a takeover, consolidations and management restructurings. <WWD>

Hedgeye Retail’s Take: Being in the position to take shots on new initiatives is one of the byproducts of significantly outperforming your competition. Taking risk heading into the 2H is about as counter-consensus as it gets at the moment, but to the extent Macy’s can uncover a few new successful concepts, this is exactly what will keep the company out in front in retail. That said, we want to see all companies take shots when they should – not when they can. There’s a difference. When a company ‘can’ is usually towards the peak of its cash cycle. Incremental returns rarely look good thereafter.