- Yes, the company has made some very good decisions over the past few years. No argument there. WRC cleaned its books after accounting irregularities (which were set in place in part by the ops folks under the former regime), as well as sold and closed down unprofitable divisions. There's no denying that this is a better company today than 2 years ago.
- Now we're looking at a streamlined WRC, whose main profit engine is Calvin Klein Underwear. A great global business - and probably the best undergarment brand aside from Victoria's Secret. But with margins topping 20%, cotton costs up 30% vs. last year, and what I would argue is too much FX benefit flowing through to the EBIT margin line instead of being reinvested in the business (CKU as well as CK Jeans), this thing just smells off to me.
- In addition, a key factor I like to track is the ratio of sales growth vs. inventory growth, and WRC's ratio has been defying gravity - leading the industry for 3 quarters. In fact, WRC's inventories have trended from 130 days to 110, partially due to divestitures. Though now inventories have ticked up, suggesting that perhaps they've found a near term bottom. When I layer that on top of WRC hitting very tough margin compares 2 quarters out, and a much cleaner P&L (making it difficult to sandbag with guidance) then I truly wonder how this multiple stays at a 20% premium to higher quality companies.
Nike and Brand Jordan. What's there to say here? Business is solid. The brands have collectively gained 5 points of share thus far year-to-date (and not slowing). They won't give it up anytime soon. I wish I could say this about Nike's apparel business, which still can't find its groove. But with 46% share of a $9bn wholesale footwear market, Nike needs about 1.5 points of share gain to maintain the 3-4% top line growth rate necessary to fuel its broader financial model. 5 points gets Nike's USA team a strong finish to a solid year.
AdiBok: Adidas and Reebok can't get out of their own way. Brand adidas is not doing badly - market share consistently down by half a point (but getting less bad on the margin), and order levels are healthy. Adi might fare well in an athletic rebound as the brand never lost relevance (especially in apparel). But Reebok's chart almost suggests that share is going to zero. Almost every retail contact I have in my arsenal agrees that there is absolutely no reason to buy Reebok. The consumer simply does not want it. Reebok's share is down to 3-4%, but keep in mind that its share in lower-end department stores is closer to 8%. Yes, this is very very bad. With cost pressures heating up, and Under Armour coming in (Reebok owns the NFL license, and UA is all over football) my bet is that RBK loses another point at a minimum over a year. That might not sound like much, but it cuts the size of the US business by another 25%, or $90mm wholesale. While not a death sentence for AdiBok, UA has got to have its eye on this one.
One statistic I've got to throw out there is that New Balance - which has 9% of the US market - is larger than both Reebok and adidas combined. It now stands as the number 2 brand in the US measures in sales. Though with 80% of its sales in running and cross training (the two categories UA is targeting) I suspect that things will get ugly for NB.
Chart below shows year/year point change in market share by brand. Courtesy of NPD Fashionworld.
Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.
- Vietnam is the #2 producer of footwear outside of China. While its share is only 5% vs. China's 84% (it is also 5% of apparel vs. China at 40%), it serves as a low cost buffer for production when China takes up prices and/or cannot meet production needs.
- With inflation running at 22% and workers are striking because wage hikes as high as 14% are not enough, and the currency doing nothing but go down, I can't possibly see how this is a good thing. This is not good for anybody in any industry.
- While I think that numbers look very good at Nike, I'd be remiss to not point out that 31% of its sourcing is in Vietnam. Adidas is 28%
According to Experian Group Ltd., the number of Britons visiting malls and town-center stores dropped in May as higher food costs, fuel prices and mortgage rates cut into disposable incomes. The shopping statistics in May dropped 1.5% from last year and 3.4% from April.
Retail sales in Germany, Europe's largest economy and McDonald's largest European market, unexpectedly dropped for a second consecutive month in April as faster inflation left consumers with less money to spend.
The three year stack in same-store sales is as difficult as it's ever been for McDonald's and European consumer spending is slowing.
in that province - just one part of province, we had 73 restaurants, all but two of them are back in operation today. We've made significant contributions to people in need there. We had some financial issues with some of the stores in that particular province. So when we look at the business, we think we probably had about around a $5 million impact overall.
He went on and implied that the three day of mourning slowed same-store sales trends. The obvious question is how much have sales slowed and for how long?
get free cartoon of the day!
Start receiving Hedgeye's Cartoon of the Day, an exclusive and humourous take on the market and the economy, delivered every morning to your inbox
By joining our email marketing list you agree to receive marketing emails from Hedgeye. You may unsubscribe at any time by clicking the unsubscribe link in one of the emails.