R3: REQUIRED RETAIL READING
June 10, 2011
Between a capital infusion at a private player (Newton) and UA stepping up its game, expect continued innovation out of the running category.
RESEARCH ANECDOTES
- While management at GPS reiterated that cost increases at Banana would be up MSD at most, they were considerably less specific regarding the increases at Old Navy and the outlet business. As the primary drivers of average AURs up over 20% in the 2H, it is concerning to hear that management is still ‘working over the business’ to manage cost.
- Among the new products showcased at UA’s investment day, one of the highlights was the company’s new ChargeRC lightweight running shoe. Not only is UA entering this booming sub-category, but more importantly this shoe is a solid effort in establishing the brand as a technical player instead of simply a big box discount offering. At a project $120 ASP, the ChargeRC is also likely to provide a healthy boost to gross margins. (take a look)
- On the heels of opening its second stand alone men’s store in Boston last week, COH attempted to frame the men’s opportunity by region. In China, men’s represents 40% of the luxury spend on accessories, Japan 15%-20%, and in the U.S. only 10%-15%. By contrast, men’s accounted for only 3% of COH’s total global sales in 2010. As such, we can expect to see an increase in ‘dual gender’ stores from Coach as well as additional stand alone stores – viva la manbag!
- Here’s a calendar shift worth noting, unique wedding dates driven demand in Q3. Management of MW noted that in years past, wedding dates such as 7/7/7 and 10/10/10 have driven a surge in wedding demand and it expects a similar effect on 9/10/11 to the tune of $0.03-$0.04 in EPS. Who would have thought that unique/novelty wedding dates could have such an impact?
OUR TAKE ON OVERNIGHT NEWS
Paul Fireman Invests in Newton Running - Five years after selling Reebok to Adidas for $3.8 billion, Paul Fireman's private-equity firm is backing Newton Running Co., the Boulder, CO. maker of "natural" running shoes. Boston-based Fireman Capital Partners has invested between $10 million and $20 million in the 4-year-old company, managing general partner Dan Fireman told the Boston Herald. It's the sixth investment by the firm, whose portfolio also includes Hudson Jeans, Evolution Fresh, Serena & Lily, IdeaPaint and Pilla. "We're going to have a significant stake," Fireman told the newspaper, adding that both he and his father will be very active in Newton Running. "We'll have influence over the company, its direction and operations. It's great when you can take those skill sets that you've learned and done for years and apply them to a company that you really understand." <SportsOneSource>
Hedgeye Retail’s Take: Fireman may have been a lousy CEO – a REALLY lousy one… But he’s a much more astute investor. Remember that he’s the one who bought rights for the Reebok Brand in the US back in the 1980s in conjunction with the ‘Flashdance’ phenom as well as the NYC transit strike during which women walked to work. The most recent investment in Newton Running is a superb investment (McGough’s opinion). Check out the product. It is revolutionary. High priced and worth it.
Old Navy Goes After Men in New Ad Push - Old Navy is looking to enlist a few good men. The retailer is launching its first campaign specifically targeting men this Thursday. It has appealed to guys in the past through its broad family-focused advertising, said Amy Curtis-McIntyre, senior-VP marketing. But now Old Navy is intent on speaking directly to "Mike," it's 25- to 35-year-old target. "We've made a lot of changes to our assortment, and we really want to ignite a conversation with that male target," Ms. Curtis-McIntyre said. "It's a big piece of business, and it's time to speak directly to Mike and not just through his girlfriend, wife or sister." Ms. Curtis-McIntyre said the men's product has gone through significant changes in recent seasons, with the addition of new denim washes and styles, as well as the addition of more tailored shirts and pants. <AdAge>
Hedgeye Retail’s Take: Hey, you can’t blame them. The only downside for Old Navy is that they do nothing and continue to underperform the industry. They need to take more risk – or at least as much risk as the company’s sheer size can stomach.
Ackman becomes Family Dollar's Biggest Holder - Hedge fund manager William Ackman disclosed Thursday that he recently boosted his ownership of Family Dollar Stores Inc. by about 5 million shares, making his Pershing Square Capital Management the largest shareholder of the discount retailer. The move takes his stake to 10.9 million shares, or 8.9% of Family Dollar, and comes on top of a disclosure last month, when he reported the 5.8-million-share position he built during the first quarter. He made that disclosure— a day after publicly praising the stock at a hedge-fund conference—in an amended Securities and Exchange Commission filing for which he had previously requested and received permission to keep some holdings confidential. Billionaire Nelson Peltz and his Trian Fund Management LP had been the largest holder of Family Dollar, with a roughly 6.5% stake. Trian in February offered to buy the rest of Family Dollar for $55 to $60 a share. The company rejected the offer. <WallstreetJournal>
Hedgeye Retail’s Take: Billy’s stake in FDO stands at about $571mm. A huge number in itself. But it’s still half of the $1.2bn he owns of JC Penney. Both companies would be better off without him.
Tory Burch Wins $164M in Cybersquatting Suit - Tory Burch LLC has scored another major designer victory against online counterfeiters — a $164 million one at that. A New York federal court has awarded the fashion firm damages in that amount against hundreds of operators of Web sites selling fake Tory Burch Reva ballet flats and other footwear, handbags and accessories. While Burch has almost no chance of getting the money from the sites, the award is believed to be the largest sum of damages ever issued to a fashion firm in the ongoing battle against online counterfeiters. In addition to monetary damages, the court ordered that 232 domain names used to sell Tory Burch fakes be permanently disabled and turned over to the New York-based fashion label. The ruling, delivered last month, also allows the brand to disable any additional offending sites created by the defendants in the future without needing a new lawsuit. <WWD>
Hedgeye Retail’s Take: Even though most Wall Streeters could care less about Tory Burch (even though it is a solid brand that will be bought by a bigger company at some point), this ruling is substantive. The monetary reward, as the article points out, is immaterial. It may as well be $1trillion. Tory won’t see a dime. But the closure of distribution for knock-offs is a solid precedent for all.
LIDS Sports Group Buys Buckeye Corner Stores - LIDS Sports Group has acquired Buckeye Corner stores, which operate in the Columbus, OH area. The acquisition is made up of four store locations, the e-commerce website www.buckeyecorner.com, and a catalog business. Terms of the acquisition were not disclosed. A retailer specializing in the sale of officially licensed sports headwear, apparel, accessories, and novelties since 1980, Buckeye Corner has been the official retail partner of The Ohio State University Alumni Association, Inc. since 2004. Buckeye Corner now operates within the LIDS Clubhouse division of LIDS Sports Group. LIDS Clubhouse operates more than 20 team-specific professional sports and university athletics retail stores and e-commerce websites. "Buckeye Corner, serving one of the largest and most passionate fan bases in all of college athletics, is a marvelous addition to the LIDS Clubhouse team, and represents the latest example of LIDS Sports Group's commitment to sports fans to be the premier specialty sports retailer in the country," said Ken Kocher, president of LIDS Sports Group. Buckeye Corner store locations include Easton Town Center, Polaris Lifestyle Center and Northwest Square in Columbus, and Lane Center in Upper Arlington, Ohio. LIDS also currently operates five headwear specialty retail stores around Columbus, 32 stores across Ohio, and more than 975 stores across North America. <SportsOneSource>
Hedgeye Retail’s Take: This is the ultimate specialty specialty concept. Not material at all. But interesting that they’d go to such a niche market.
Customs Seizes Chinese Shipment of Fake Designer Gear - Federal authorities recently seized three Chinese shipments of fake designer clothes that could have sold for $14.3 million, U.S. Customs and Border Protection officials said Wednesday. More than 47,000 pieces of clothing violating trademark labels of designers Chanel, Polo, Gucci, Coogi and Dior were discovered inside cargo containers shipped in March, April and May to the Los Angeles/Long Beach seaports, said CBP spokesman Jaime Ruiz. <MercuryNews>
Hedgeye Retail’s Take: Not all lbrands are as fortunate as Tory Burch.
