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R3: SKX, FDO, TIF, PVH, & Prada

R3: REQUIRED RETAIL READING

May 26, 2011

 

 

 

RESEARCH ANECDOTES

  • In addition to the expected decline in toning sales contribution in Q1, both BWS and PSS noted that weaker than expected sandal sales impacted the quarter by 1%-2%. While the category typically accounts for ~15% and ~25% of sales at both BWS and PSS respectively in Q1, the current quarter is even more significant with sandals accounting for roughly 1/3 of total sales representing the category’s busiest season.
  • The latest product introduction from RL is the return of denim with its Denim & Supply brand slated to launch this fall. Nearly four years after closing its Polo Jeans Co. business in the U.S., the company will be introducing the line at 250 better department stores in U.S.  and Canada in addition to replacing the Polo brand in Europe and Asia.
  • TIF printed a surprisingly good quarter. Perhaps the most notable points are 1) a 23% comp at the NY flagship and 2) though Japan was -3%, comps were up in Feb, and positive again in April.

OUR TAKE ON OVERNIGHT NEWS

 

Skechers Establishes Fitness Group - Skechers USA, Inc. has developed the Skechers Fitness Group sales force to support the company's increasing focus on technical athletic footwear. With this change, the company created two distinct sales organizations -- one to focus on its performance footwear and the other on its lifestyle footwear.  In so doing, Skechers said it is capitalizing on its growing technical lines while utilizing the talents of its veteran team in order to better meet the needs of its accounts. "Since we began in 1992, lifestyle footwear has been at the core of our business and allowed us to grow from a small company to a globally recognized two billion-dollar brand," began Michael Greenberg, president of Skechers. "Over the last year, we have grown our offering of technical athletic footwear to encompass numerous cutting-edge running, training and walking shoes under our Resistance, Shape-ups and Tone-ups lines, transitioning from a pure lifestyle brand to a lifestyle and high-performance company. The changes in our sales organization reflect this natural evolution of our brand. With new technical product launching throughout this year and next, we felt it imperative to build an expert athletic sales force to more effectively sell and market our growing Skechers Fitness Group offering." <SportsOneSource>

Hedgeye Retail’s Take: This absolutely positively scares the heck out of us. SKX has a core competency – and that is being a ‘fast second.’ Specifically, they capture an established trend and run with it until it can’t run no more. But when they change the plan and the structure of the company to compete in the technical arena, then they compete with Nike, Adidas, Reebok, Under Armour, etc… Why SKX would choose to get into the Octagon with any of them is beyond me.

 

Prada IPO Valued at $15B - Prada is on its marks, as its initial public offering is expected to take place June 23 or 24, and reports on the company’s possible valuation are beginning to reach clients.  Banca IMI-Intesa Sanpaolo Group, which owns 5.1 percent of Prada and is one of the banks leading the IPO, estimates Prada may be valued at 10.7 billion euros, or $15 billion at current exchange, according to a source. Intesa forecasts Prada’s net profits may rise to 381 million euros, or $536.3 million, in 2011 and to 503 million euros, or $708 million, in 2012. Intesa’s valuation is based on around 21 times Prada’s estimated 2012 profits.  The Italian luxury firm had record profits and sales in 2010. In the year ended Jan. 31, the company reported a 150.4 percent surge in net profits to 250.8 million euros, or $331 million at average exchange. Revenues totaled 2.05 billion euros, or $2.71 billion, up 31.1 percent compared with the year before. Until recently, analysts have said the IPO could value the company at up to $9.5 billion.

<WWD>

Hedgeye Retail’s Take: Let me get this straight…Wall Street has thought it was worth $9.5bn, but now the banker – who is also part owner of the company – is saying that the Street’s valuation is 50% too low?

 

Ackman Buys ‘Passive’ Family Dollar Stake - Bill Ackman, the founder of Pershing Square Capital Management known for investing in companies to press for changes, said he invested in Family Dollar Stores Inc. (FDO) because it’s “very reasonably priced” and may be acquired. Ackman, speaking today at the Ira Sohn Conference in New York, said it’s a “passive” stake, meaning he’s not going to pressure management. “It’s a good business, it’s done very well for a long time,” he said. “It’s an attractive LBO transaction,” he added, using the abbreviation for leveraged buyouts. Family Dollar, a discount retailer based in Matthews, North Carolina, has advanced 10 percent to $54.82 in 2011 after more than doubling during the prior three years. The stock climbed 2.5 percent to $56.19 at 5:15 p.m. New York time in after-hours trading following Ackman’s announcement. It rejected a takeover offer from Nelson Peltz’s Trian Fund Management LP in March, saying it “substantially” undervalues its business, and adopted a defense to discourage unsolicited offers. <Bloomberg>

Hedgeye Retail’s Take: FDO is a well run business. But the only way it is ‘substantially undervalued’ is if an activist goes in and pressures management to make the wrong decisions to boost near term results and borrow from the future. 

 

Express to Unveil New Prototype - Express will unveil a Japanese-designed store prototype next month with industrial fixtures, a larger footprint, a dual gender “denim lab” and a runway down the center to merchandise key products. “The best of what we know and have learned over many years has been put into this new store design concept,” said Michael Weiss, president and chief executive officer of the 600-unit chain, who described the prototype as “modern, sophisticated and engaging.…We look forward to measuring the impact it has on our business in two markets.” The prototypes are 13,000 square feet, with 10,500 for selling.

<WWD>

Hedgeye Retail’s Take: I know this is way too cynical and one sided… But the concept was a perennial problem-child in the US. So it goes to Europe, triples the footprint, and takes up store level G&A with a fully functioning catwalk? They’d darn well better find the right consumer.

 

Hilfiger Men's Set for The Bay in Canada - The Tommy Hilfiger Group, wholly owned by Phillips-Van Heusen Corp., has a new distribution strategy to tackle the Canadian market.  The firm has signed a deal to offer Hilfiger men’s wear exclusively in 90 The Bay stores across Canada, beginning in August.  The launch of Hilfiger’s men’s sportswear at The Bay signals the brand’s reentry into the wholesale distribution channel after a few years of a retail-only business model in Canada. Hilfiger will invest in the development of fixtured shop-in-shop environments in key doors. In August, 66 locations, including The Bay’s flagships in downtown Toronto, downtown Montreal and Vancouver, will open Hilfiger shops, followed by 24 more throughout the fall. The average Hilfiger men’s wear shop will be about 500 square feet, but will measure 750 square feet in the Toronto, Montreal and Vancouver flagships. <WWD>

Hedgeye Retail’s Take: One of the many opportunities Manny has in his bag of tricks to grow this brand. Damaged in the US, it was always strong in Europe. But Tommy Canada makes perfect sense growing it from a small base.

 

Iconix Brand Group Said Close to Deal for JA Apparel - JA Apparel Corp., the owner of the Joseph Abboud and Joe by Joseph Abboud brands, is said to be close to inking a deal with Iconix Brand Group. A deal, although imminent, could still fall apart, financial sources said. Terms of the transaction were not immediately available, but sources said it could be valued in the $90 million range, lower than the $100 million-plus price tag that JA’s principal owners, private equity firm J.W. Childs Associates, had been seeking. J.W. Childs, which formed JA Apparel to acquire the trademarks in 2004 for $73 million, less debt, put the operation up for sale in 2006, then took it off the market for a time when it couldn’t find a buyer.

<WWD>

Hedgeye Retail’s Take: Icon continues to crank this business model – albeit via acquisitions. Abboud has come a long way since establishing himself as the head of men’s wear at Ralph Lauren in the 1980s. Though JA Apparel still owns the right to his name, Mr. Abboud is completely removed from the operation. He currently runs his own line called Jaz.

 

Ray-Ban Opens Online Store to go After Chinese Consumers - Eyewear manufacturer Ray-Ban has opened an online store in China in order to tap into the Chinese luxury goods market. As a subsidiary of Luxottica Group, the company has created the new e-store on Taobao Mall – the largest online retail website in China to sell goods tailored exclusively to the market such as Ray-Ban Asian Fit and Asian Design alongside with its established product lines. Sara Beneventi, global brand director of Ray-Ban, said: "In the future we will continue to build upon our brand awareness in China by leveraging Taobao's 370 million-plus consumer community." <FashionNetAsia>

Hedgeye Retail’s Take: This is kind of ironic given that all the knock-off sunglasses you find in the US and Europe originate in China. That said, the emerging Chinese middle class does not want a knock off, they want the real deal. This looks like a great move for Ray Ban.

 

Chinese Sieze Counterfeit Teva Sandals - Deckers Outdoor Corp. confirmed that customs officials in Ximaen, China siezed 36,720 pairs of counterfeit Teva sport sandals with a value of RMB 216,100 ($33,280). Xiamen Customs contacted its trademark owner Deckers Outdoor Corporation, immediately after the consignor of this batch failed to provide its authorization letter. Deckers Outdoor confirmed the infringement in a letter dated May 16 and applied for customs protection to detain the batch of fake Teva sport sandals, according to Xiamen Customs. A day later,  an additional 36,000 pairs were seized at customers. Both shipments were en route to Ghana, which has become a major transit destination for counterfeit goods, according to a spokesman for Deckers Outdoor contacted by The B.O.S.S. Report. <SportsOneSource>

Hedgeye Retail’s Take: 2 containers with about 72,000 pair of sandals seized. It kind of makes you wonder how many knock-off containers there really were?