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Retail First Look: 6/11/09


11 JUNE 2009



Here's a pretty massive datapoint on one of our key themes for 2H09 - import prices and the subsequent impact on the supply chain.  Import prices for apparel had a huge drop off in the latest reported data -- down 5.85% after last month's down 3.4%.  Last time it was down this much was November 2005 (down 7%) and after that, October 2002 (prolonged period of -6% to -8%). Most notable is that the CPI is still hovering at +1%. Consumer prices up, import prices down...it doesn't take a rocket scientist to figure out that this is a positive margin event for the apparel retail supply chain.  Thanks McGough... but these datapoints are only for the month of April...I'm already starting to make July 4th barbecue plans.  Yeah... I get that. But this morning we see that unit imports from China are up 15%, and Vietnam are up 10% last month while total imports from all countries globally are down 8%. Translation, total imports are down, so inventories will remain in check. But the countries that are disproportionately gaining share (at an accelerating rate) are the ones that are cutting price. Bottom line: declining imports AND prices is a great setup for margins in 2H. Yet another reason why I find it tough to be bearish.


Retail First Look: 6/11/09 - 1


Retail First Look: 6/11/09 - 2



Some Notable Call Outs

  • Neiman Marcus' F3Q conference call did not offer any sense of a change in momentum in the luxury sector. Weakness persists universally across all geographies and product categories. As a result, management is working to skew the product mix toward lower price points. However, the real key here is traffic generation, which will likely remain under pressure despite increasingly easy comparisons.


  • Drama has arisen out the Filene's Basement bankruptcy auction. The court has re-opened the bidding process after what appeared to be a done deal with Men's Wearhouse. This action stems from other bidders suing, claiming the court did not follow proper auction procedure. The auction will resume on Friday with an opening bid in place from Syms and Vornado.


  • Weekly NPD data suggests footwear sales continue to erode with trends getting sequentially worse for three weeks in a row. Retailers are holding ASP's up well above last year's levels which indicates promotional activity is quiet. Difficult compares against the stimulus package last year is another reason for softer footwear trends. Sales were negative across all brands except Under Armour, which has positive sales due to its new running shoe launched in February. Converse and Saucony turned negative for the first time in weeks. Vans receives the negative callout for the week with sales declining from +59% to -12.5% over the past three weeks.


  • Wednesday marked the "coming out" party for CROX's new CEO, John Duerdon. With the stock up nearly 13% on 3.5x avg. daily volume we can assume that he passed "the test." The next step is executing to plan.


  • When asked to address the change investors could expect when Tommy Millner assumes the CEO position at Cabela's in early August from 33 year veteran Dennis Higby, Brian Linneman (COO) remarked that while the philosophical approach is unlikely to change, "clearly he will add a fiscal responsibility that I think we have not perhaps seen in the past." I'd venture to say that with an average store size of 150,000 sq. ft., an improvement should not prove insurmountable.


  • Regions in the Southeast, southern California, Las Vegas and Phoenix remain weak according to Dress Barn's CEO, David Jaffe, however, there have been no signs of weakness in Michigan/Ohio yet as expected due to the auto industry shakeup. Nonetheless, DBRN will proceed with expansion plans into those markets with caution as will others.


  • LULU reported EPS of $0.09 per share, a penny better than the Street expectation of $0.08. Results were down from last 1Q08 EPS of $0.12. Bottom line, a slightly better quarter but it looks like it cost them on the gross margin line in order to keep inventories clean. Inventory levels are now down 19% y/y; a huge change from being up 33% at the end of 4Q08. Sigma is setting up nicely as we just anniversaried the last difficult gross margin compare.


MORNING NEWS (full detail including sources at end of this note)
ZachHammer's overview of items you're unlikely to find in the general press.

  • Apparel shipments from China and Vietnam spiked in April, despite an overall decrease of textile and clothing imports to the U.S.
  • The monthly Port Tracker report releasedby the National Retail Federation and IHS Global Insight indicates that import cargo volume at the nation's major retail container ports remained below theone million mark in April and was the third-slowest month in the past five years
  • Retailers in cities across the U.S. reported the economic clouds of the last few months could be parting, but consumers remained focused on necessary purchases instead of luxuries, according to the Federal Reserve Board's Beige Book
  • Gap Inc. is accelerating its plans to put the "new" back in Old Navy
  • The Dallas-based Neiman's, once thought impervious to downturns, has been reeling as much as any retailer under the weight of the recession
  • Speaking at the recent Adidas Football Day in Herzogenaurach, Germany, Herbert Hainer, CEO and Chairman of Adidas AG, suggested that the company will "further extend" its position in football (soccer) next year when the World Cup will take place in South Africa
  • Retail sales for all core outdoor stores combined (chain, internet, specialty) grew 2% c
  • Harrods Ltd., Mohamed Al-Fayed's luxury London store, is riding out the economic storm as Middle Eastern and Chinese visitors buy its most expensive Chanel suits and Louis Vuitton bags
  • It was a tough first quarter on the web for Brown Shoe Co. and its Shoes.com e-commerce business
  • NBA Finals has even more viewer ship this year compared to the show down of Celtics Lakers last year
  • Aetrex Worldwide Inc. has formed Aetrex Canada, a new division
  • Iconix Using Romo to Resurrect Starter Brand
  • Cooper Martin, LLC unveils a first in healthcare apparel: an original, innovative line of medical and recovery care clothing that is both high style and high performance
  • Herndon, Va.-based wRatings Corp. released its latest "W Score" report, ranking the most competitive retailers and consumer goods firms from a financial and consumer perspective
  • Top 50 retailer web site with a high broadband connection report for May.
  • Most Interesting Shoe of the Week - The Zaha Hadid for Lacoste footwear


RESEARCH EDGE PORTFOLIO: (Comments by Keith McCullough):


06/10/2009 10:05 AM


McGough and Levine put up a solid note on this a few days ago. This company has misunderstood enterprise value and operating leverage. Short int is high. KM


06/10/2009 09:56 AM

BUYING UA $23.92

McGough was the bear for years, and now he's the bull who owns this debate. I love being long the short interest here. KM



Branded Apparel (LIZ, RL, UA, GES): Morgan Stanley upgrades Branded Apparel sector to in-line from cautious.

PVH: Morgan Stanley upgrades Phillips-Van Heusen to Overweight from Equal-weight, price target to $37 from $22.

JNY: Morgan Stanley upgrades Jones Apparel to Overweight from Equal-weight, $14 price target.

WRC: Morgan Stanley downgrades Warnaco to Equal-weight from Overweight, price target to $39 from $23.


As noted above, it is extremely difficult to be bearish on this space right now - regardless of missing the first 50% move. Hindsight does not matter.


Insider Trading Activity:


VFC: Candice Cummings, VP Admin & General Counsel, sold ~9,800 shs roughly 1/3 of her common stock holdings.

FOSL: Tom Kartsotis, Chairman, sold ~27,000 shs under a 10b5-1 plan on base of ~6.5mm shs.



Retail First Look: 6/11/09 - 3      



Apparel shipments from China and Vietnam spiked in April, despite an overall decrease of textile and clothing imports to the U.S. The Commerce Department's Office of Textiles & Apparel on Wednesday said imports of apparel to the U.S. from China increased 15.5 percent to 524 million square meter equivalents in April compared with a year earlier. Shipments from Vietnam were up 9.6 percent for the month to 121 million SME. Combined shipments of textiles and apparel to the U.S. from all trading partners in April dropped 9.7 percent to 3.62 billion SME. Apparel imports declined 8 percent to 1.52 billion SME, while textile shipments slipped 10.8 percent to 2.09 billion SME. April marked the 12th consecutive monthly decline in year-to-year import comparisons. "It is evident from today's trade data that our global community is facing a difficult economic environment," said U.S. Trade Representative Ron Kirk. "Now more than ever, we should strengthen, not weaken, our economic ties with the world community, because international trade can and will help drive the world's economic recovery." China's overall shipments of textiles and apparel to the U.S. were dragged down by falling textile figures, the Commerce Department office noted. Combined shipments dropped 1.2 percent to 1.53 billion SME. Countries reporting significant declines in April included Mexico, Honduras and Pakistan. Apparel and textile shipments from Mexico fell 28.3 percent to 176 million SME, Pakistan's combined shipments dropped 12.8 percent to 210 million SME and imports from Honduras plummeted 37.3 percent to 68 million SME. Vietnam continued to show overall growth, increasing its April apparel and textile shipments to the U.S. by 23.2 percent in 12-month comparisons to 160 million SME. South Korea increased textile and apparel shipments 2.6 percent to 131 million SME. Combined textile and apparel imports to the U.S. from the other top 10 suppliers all declined in April. The top five apparel shippers to the U.S. in April were China, Vietnam, Bangladesh, Honduras and Indonesia. China was also the top textile supplier, followed by Pakistan, India, South Korea and Mexico. The nation's trade gap widened slightly in April to $29.2 billion from $28.5 billion in March. Most of the increase was driven by oil imports, economists said. "The April trade deficit was little changed from March, but the trade figures were disappointing in the sense that both export and import volumes tumbled again," said Nigel Gault, chief U.S. economist at IHS Global Insight.

Pasted from <http://www.wwd.com/business-news/apparel-imports-from-china-and-vietnam-rise-in-april-2164480?navSection=business-news>


The monthly Port Tracker report released by the National Retail Federation and IHS Global Insight indicates that import cargo volume at the nation's major retail container ports remained below the one million mark in April and was the third-slowest month in the past five years despite a slight improvement over March. "Retailers are still being cautious with their inventory levels in anticipation of slow sales this summer and into the fall," NRF Vice President for Supply Chain and Customs Policy Jonathan Gold said. "The big question is what will happen during the fourth quarter. Our numbers for the fall are an improvement over the summer but are still lower than last year." The report indicates that U.S. ports surveyed handled 990,632 Twenty-Foot Equivalent Units in April, the most recent month for which actual numbers are available. That was up 2 percent from March but down 22 percent from April 2008. After February (839, 492 TEU) and March (970,949 TEU), the figure was the third-lowest since the 901,497 seen in February 2004, and marks the 22nd month in a row to see a year-over-year decline. One TEU is one 20-foot container or its equivalent. Volume for May was estimated at 1.03 million TEU, down 21% from a year earlier, and June is forecast at 1.06 million TEU, down 19% from last year. July is forecast at 1.1 million TEU, down 16%; August at 1.14 million TEU, down 17%; and September at 1.12 million TEU, down 18%. October - traditionally the peak of the annual shipping cycle as holiday merchandise flows into stores - is forecast at 1.15 million TEU, down 16%.

Pasted from <http://www.sportsonesource.com/news/article_home.asp?Prod=1&section=5&id=28289>


Retailers in cities across the U.S. reported the economic clouds of the last few months could be parting, but consumers remained focused on necessary purchases instead of luxuries, according to the Federal Reserve Board's Beige Book released Wednesday. Anecdotal accounts in the report point to a leveling out of sales pressures and in some regions slight improvements, as the economic downturn appeared to moderate. Overall, the 12 districts included in the Beige Book said economic conditions were still difficult, but five districts said the downward trend was slowing and several said their outlook had improved. Retailers in New York, Minneapolis and Dallas reported slightly improved sales in recent weeks. Reports from Boston, Philadelphia, San Francisco, Cleveland, Kansas City and Atlanta were flat or mixed. Several districts said discount retailers continued to perform better than other stores. Sales of luxury goods and discretionary purchases were sluggish in most districts. Retailers in New York, Philadelphia, Chicago, Dallas, San Francisco and Kansas City reported consumers were favoring less expensive or discount lines and stores over premium brands and luxury products. In Philadelphia, merchants gave conflicting reports, but generally indicated they do not expect sales to improve during the rest of 2009. The chief executive officer of a large chain store said, "We are a value proposition, so we are benefitting from uncertain economic times." Another executive at a high-fashion chain said, "Luxury is in the tank." Sales in Kansas City remained steady, according to retailers in the district, but had not yet recovered compared to last year. Sales of basic apparel items increased, but demand for luxury goods and home furnishings was still lackluster, according to retailers in the area. Mall traffic was also slower. Department stores and specialty retailers in San Francisco reported weak overall demand. One retailer in New York said price discounting had reared its head again recently. In contrast, most retailers in Boston reported a modest sales increase over the same period a year earlier despite continued pressures on other sectors in the district.The uneven Beige Book results, coupled with a weak Treasury bill auction and a government report of an unexpected drop in crude oil inventories, contributed to a down day for retail stocks and the market in general Wednesday. After two days of small advances, the S&P Retail Index fell 3.10 points, or 0.9 percent, to 335.68, while the Dow Jones Industrial Average declined 0.3 percent to 8,739.02 and the S&P 500 was off 0.4 percent to 939.15.

Pasted from <http://www.wwd.com/business-news/apparel-imports-from-china-and-vietnam-rise-in-april-2164480?navSection=business-news>


Gap Inc. is accelerating its plans to put the "new" back in Old Navy. In an effort to recapture lost market share, the company Wednesday said it would remodel 50 Old Navy stores during the third quarter, and would have new models for its namesake chain, Banana Republic and outlet stores by the fall. The repositioning of the value-oriented Old Navy brand through product, pricing and marketing has paid dividends for the company recently. The division's comparable-store sales rose 3 percent in May and 1 percent in April following a flat month in March and, prior to that, 23 consecutive months of declines, highlighted by a 34 percent drop-off last January. Gap chairman and chief executive officer Glenn Murphy told attendees at Piper Jaffray's consumer conference in New York that, through a series of investments, the company since March has "turned the trajectory of the sales that you saw - the path that Old Navy has been on for the better part of five years - by getting the brand refocused, understanding who it's actually going after, what is the customer target." A vital part of Gap's turnaround effort is revamping Old Navy, which hadn't received a makeover since it was founded 15 years ago. "We have a model that was successful for a long time," Murphy said. "We held on for too long. We never really went back and refreshed them and modernized them." Murphy said executives at the firm were "pleased" by results at a new Old Navy prototype rolled out in two California locations. As for Banana, Murphy said the goal was to grow the brand internationally: "We believe there's a city strategy for Banana Republic, which is very important to us as we look at our future international, corporately controlled growth strategy." Murphy's top goal is strengthening Gap's brands in North America to allow them to continue to expand abroad. Growth in the outlet and online operations was also pegged as a priority, with Piperlime.com moving beyond footwear and accessories and into apparel, and new Web sites planned for the Canadian and U.K. markets, to be followed by Japan.

Pasted from <http://www.wwd.com/business-news/apparel-imports-from-china-and-vietnam-rise-in-april-2164480?navSection=business-news>


The Dallas-based Neiman's, once thought impervious to downturns, has been reeling as much as any retailer under the weight of the recession. It's been criticized by some for not responding sufficiently to the new consumer psychology after enjoying a long run of unabashed spending by the affluent. However, for the first time, Tansky and his team on Wednesday projected a proactive stance and detailed a recovery plan, citing:

  • Salary and staff cuts at stores and headquarters, including centralizing marketing and fashion office functions to further reduce payroll and create a consistent and focused voice to consumers. Previously, there were separate marketing teams at Neiman's, Bergdorf Goodman and NM Direct. Overall, NMG is operating with 16 percent fewer associates than a year ago.
  • Reducing inventories, with receipts down 25 percent for fall, although they are not expected to be aligned to demand for several seasons, as Neiman's works to flow through fashion products faster than basics.
  • Overall, reducing expenses by $125 million on an annual basis.
  • Creating new types of special events to lure customers. They're often smaller and more intimate, and involve charities and gift card opportunities.
  • Negotiating with developers to possibly postpone store openings, but not this September's opening in The Shops at the Bravern in Bellevue, Wash., a suburb of Seattle. The store will mark Neiman's debut in the Pacific Northwest. "We are scrutinizing all proposed projects with a heightened degree before we commit capital," Tansky said. Stores are planned for Walnut Creek, Calif., and Sarasota, Fla., in fall 2011; San Jose, Calif., in 2012; Princeton, N. J., in 2013, and Oyster Bay, N.Y., where there is no opening date, as the mall there has yet to be built.
  • Trimming store hours at certain locations to better schedule associates for peak traffic hours and away from down times.

Also on Neiman's austerity agenda - bringing prices down via a shift in the merchandising mix toward more midtier pricing, within collections currently carried, without trading down.

Pasted from <http://www.wwd.com/footwear-news/aetrex-forms-canadian-division-2164242?navSection=footwear-news>


Speaking at the recent Adidas Football Day in Herzogenaurach, Germany, Herbert Hainer, CEO and Chairman of Adidas AG, suggested that the company will "further extend" its position in football (soccer) next year when the World Cup will take place in South Africa. "We are well positioned to further extend our market leadership in football again next year," commented Hainer. "We start from the same position as for the extremely successful 2006 World Cup. As Official Sponsor, Adidas will supply the Official Ball of the tournament and equip officials, referees, volunteers and ball kids. Additionally we outfit the host team South Africa." The company said its products for the World Cup will be presented in the second half of 2009. According to the most recent independent market surveys, Adidas suggested it is the world's leading football brand, with a market share of more than 34%. The company cited data that in core markets such as Germany and North America, Adidas' football market share was over 50% of the total market. (Sources: NPD Sports Tracking Europe and SportScanINFO).  "This is the very first time a Football World Cup is taking place on the African continent. We will utilise this event to present new, innovative products and to convey the fun and excitement the African people find in football to fans worldwide. The marketing focus will be clearly on digital channels and POS, in order to be able to communicate as interactively and individually as possible," explained Bernd Wahler, Chief Marketing Officer Adidas Sport Performance.

Adidas indicated it expects to generate double-digit sales growth in South Africa in the years to come.

Pasted from <http://www.sportsonesource.com/news/article_home.asp?Prod=1&section=8&id=28288>


Retail sales for all core outdoor stores combined (chain, internet, specialty) grew 2% compared to last April, moving from $339 million to $347 million, according to the most recent edition of The Outdoor Industry Association (OIA) Outdoor Topline Report. Sales for the four months of the year totaled $1.4 billion, down 5% from the same period in 2008

Pasted from <http://www.sportsonesource.com/>


Harrods Ltd., Mohamed Al-Fayed's luxury London store, is riding out the economic storm as Middle Eastern and Chinese visitors buy its most expensive Chanel suits and Louis Vuitton bags, Managing Director Michael Ward said. "There is not a recession at Harrods," Ward, 53, said in an interview when asked about the sales performance of the 160- year-old department-store. "At the moment, we continue to see the big power-brands doing really very well." Harrods has seen an influx of shoppers from the Middle East, China, India and some former Soviet states, whose currencies have strengthened against the pound, giving them more to spend, Ward said. Sterling has declined 18 percent against China's yuan in the past year, and 17 percent against the Saudi riyal. That's helped offset the shrinking luxury goods market.  "Local shoppers are reining in spending, but as long as you have wealthy tourists coming in, Harrods will benefit," Sandra Halliday, global managing editor at fashion forecaster WGSN said in a telephone interview. "In uncertain times you want the certainty of names people have heard of." Ward declined to disclose specific figures for the closely held retailer, whose store in London's Knightsbridge district sells pink, tweed Chanel suits for 5,000 pounds ($8,007) and Crème de la Mer moisturizer for 930 pounds. The most recent financial report from Harrods showed revenue rose at least 10 percent in the quarter that ended on Aug. 2, 2008. The retailer will not be forced into discounts or extra promotions that U.S. department stores such as Bloomingdale's have used to clear excess inventory, Ward said last week. Harrods will continue to hold two clearance sales a year, he added.

Pasted from <http://www.bloomberg.com/apps/news?pid=20601205&sid=awKAJ1hS.HyA>


It was a tough first quarter on the web for Brown Shoe Co. and its Shoes.com e-commerce business. For the quarter ended May 2, web sales for Shoes.com decreased by 8.5% to $15 million from $16.4 million in the first quarter of 2008. In comparison, total revenue for Brown Shoe, No. 162 in the Internet Retailer Top 500 Guide, declined 2.8% to $538.7 million from $554.5 million in Q1 of 2008. Overall, Shoes.com accounted for 3% of total sales in the first quarter and 29% of revenue for the company's specialty retail business, which posted a decrease in sales of 9.7% to $52.4 million from $58 million in the prior year. Brown Shoe posted a net loss of $7.6 million in the first quarter vs. net income of $7.2 million in Q1 of 2008. Pete Hogan, vice president of e-commerce at Brown Shoe is speaking at the Internet Retailer Conference & Exhibition, June 15-18 in Boston, in a session titled Browser confusion: How to win the battle for web performance.

Pasted from <http://www.internetretailer.com/dailyNews.asp?id=30735>


What a disaster that the Orlando Magic beat the Cleveland Cavaliers! Poor David Stern and the NBA! Well, we just got the ratings from the folks at Nielsen and check out this news bulletin: Lakers-Magic is outrating last year's ultimate matchup of the Lakers-Celtics. The first three games of this year's NBA finals have averaged 13,797,000 viewers per game. Last year's first three games had an average viewership of 13,791,000.

Pasted from <http://www.cnbc.com/id/15837629>


Aetrex Worldwide Inc. has formed Aetrex Canada, a new division. The move will enable the Teaneck, N.J.-based company to provide retailers there with better prices and faster delivery. "We now have a full-time team dedicated to the Canadian market," CEO Larry Schwartz said in a company statement. "This will provide easier access to all our marketing programs, including our patented iStep technology, which is proven to help drive revenue by increasing footwear and orthotic sales." Additionally, through its partnership with UPS' NRI division, all orders will have free freight and duties, guaranteed through the end of the year.

Pasted from <http://www.wwd.com/footwear-news/aetrex-forms-canadian-division-2164242?navSection=footwear-news>


Iconix Using Romo to Resurrect Starter Brand - Tony Romo is one of the most marketable players in the NFL. But he doesn't have a shoe and apparel deal with Adidas, Reebok or Nike.  Last year, the Dallas Cowboys quarterback signed one of the league's most lucrative deals to represent Starter, which hasn't had any official designation with the NFL since the Starter Corporation filed for bankruptcy 10 years ago. Since then, the brand -- which was founded in 1971 -- has been tossed around. It was purchased by Nike for a reported $43 million in August 2004. Three years later, Nike sold it to Iconix, a company whose brands include Joe Boxer, Danskin and Candie's, for $60 million. Iconix, whose shares are up 58 percent year-to-date, relaunched the brand in January and is now hoping Romo can help bring the brand back to its heyday, a time Romo fondly remembers. "I remember when we were growing up Starter was real big," Romo told us. "We'd love those pullover jackets. Now that they're starting to get back into the game, I'm glad I'm a part of what they want to do. It's exciting to me that it's not the traditional deal that everyone else has." Without being able to use any Cowboys logos, Iconix is selling plenty of blue and white and is using Romo in its advertising and on point of purchase materials to get attention. One of the reasons why a generic Romo can still work well is because Starter has a direct-to-retail license agreement with Wal-Mart. So Romo stands out in the stores even if he's called "Dallas QB." Romo also says the value price point appeals to him. "When I was growing up, my family shopped at Wal-Mart," Romo said. "I wasn't buying a pair of Air Jordans every year." Starter has made on-field shoes for Romo, even though he's not allowed to show the Starter star logo. But that doesn't mean all is lost. Romo says he wears Starter products off the field. Why does that matter? Because, as Romo knows, when you're dating Jessica Simpson, candid photos of you appear in magazines routinely. That's a value added that Starter couldn't have found with any other sports figure in the world.

Pasted from <http://www.cnbc.com/id/31187249>


Cooper Martin, LLC unveils a first in healthcare apparel: an original, innovative line of medical and recovery care clothing that is both high style and high performance.  Featuring ACTIVE RECOVERY TECHNOLOGY(TM), Cooper Martin clothing is ideal for those undergoing rehabilitation, recovering from an injury or orthopedic surgery, or struggling with pain, disability or limited mobility. "Currently those with limited mobility, whether temporary or permanent,have no options for easy-access, adaptive clothing that marry function,comfort and style," says Sarah Lindholm, CEO and Founder of Cooper Martin. "Individuals are forced to choose among traditional active wear, sweatpants, scrubs, or oversized clothing, which are all unflattering, non-functional and most often inappropriate to wear outside of the house. Cooper Martin's fresh product line of reliable classic khakis for men and fashionable wide-leg, floor skimming black pants for women is discreetly modified with hidden zippers, Velcro and ergonomic  construction, making dressing easier without sacrificing on style." Cooper Martin clothing looks and feels like everyday favorites but incorporates unique patent-pending features that make dressing with limited mobility less frustrating and less painful. Seamlessly intertwining innovation with ingenuity, Cooper Martin's ACTIVE RECOVERY TECHNOLOGYTM  combines a series of hidden zippers and intricate waistband construction to facilitate easy on and easy off dressing. Cooper Martin's patent pending


Active Zipper Lock(TM), a revolutionary zipper closure system, is crafted of durable, transparent PVC rubber and effortlessly locks each full-length hidden zipper into place at the waistband ensuring peace of mind. Using 100% organic cotton and only the highest quality zippers and trims, all styles are discreetly modified to allow for easy on and off.
Pasted from <http://www.prnewswire.com/cgi-bin/stories.pl?ACCT=APPSEAR.story&STORY=/www/story/06-08-2009/0005040189&EDATE=MON+Jun+08+2009,+11:01+AM>


Herndon, Va.-based wRatings Corp., an independent stock research firm, has released its latest "W Score" report, ranking the most competitive retailers and consumer goods firms from a financial and consumer perspective. "Investors are always wondering who is going to be doing well next," especially in a recession, said Gary Williams, chief executive officer. "This particular study is really a look at retailers from two typically disparate sources: How well they've been generating cash, and how well they are meeting consumers' expectations." Each quarter, wRatings polls consumers and then blends a company's historical economic performance with the consumer feedback. A W Score of 100 is the highest possible. Here are the most competitive retailers ranked by W Scores, which incorporates economic performance and consumer satisfaction:

  • 1COACH - W Score (out of 100) 92.7
    "This brand tends to be enormously in touch with its customers," said Williams of wRatings. "Since they have more upscale brand offerings, they're trying to provide a more affordable product during the recession. This is working for them. These guys know how to make investments pay off. It's a very well-managed company. The key to their success: they track their customers really well." WWD reported at the end of April that Coach was continuing to modify its pricing paradigm to better cater to a wary consumer. "For the next quarter or two, sales may decline on a year-over-year basis as the firm introduces new collections with an updated, reduced price range," WWD noted. For the three months ended March 28, sales dipped by 0.6 percent to $740 million from $744.5 million.


  • 2JOS. A. BANK CLOTHIERS - W Score Brian Tunick of J.P. Morgan told WWD at the end of April that the men's wear retailer's promotional cadence - particularly on tailored clothing - is giving it a competitive advantage. Jos. A. Bank has been running buy-one-get-two-free suit promotions, among others. "They're promotional by plan," another analyst told WWD. The chain created a program this spring that offered a refund to customers who bought a suit during its sale between March 16 and April 9 and then lost their job. Customers have to show proof that a job was lost between April 16 and July 1 to get the refund, and Jos. A. Bank will pay up to $199. "Whenever you offer a guarantee like this, you're going to have a loyal following," Williams said. "This is one of the biggest marketing strategies in 2009."


  • 3AEROPOSTALE - W Score (out of 100) 90.7
    "Aéropostale has been building on an already well-defined customer base, which is a sign of their competitive strength," Williams said. The New York-based teen brand has been pushing promotions, such as its BOGO (Buy One Get One free) program, which was extended last month from tank tops and camis to include shorts and polos. Aéropostale cut the ribbon on its first overseas store in March, giving the retailer a foothold in Dubai and the beginning of what is expected to be a broader Middle East expansion. Julian Geiger, Aéropostale's chairman and ceo, told WWD, "This new venture in Dubai will enable us to introduce the Aéropostale brand in new markets overseas and lay the groundwork for what we believe can be a greater expansion of the brand globally."


  • 4AMAZON.COM (GENERAL SITE) - W Score (out of 100) 88.1
    Williams said because of the Seattle-based online retailer's investments in programs, such as its "1-Click ordering" process, "the brand's competitiveness is strong....From a consumer standpoint, they have done extremely well for several years now. The brand listens to its customers, and those customers have been satisfied. The more a brand simplifies these types of programs for their customers, the better off you'll be." Amazon was a winner in the e-tail world over the holidays: The site reported its best holiday season in 14 years in business. The company continued to do well this quarter, posting net income of $177 million on net sales of $4.89 billion, an increase of 24 percent and 18 percent, respectively, compared with the same quarter last year.


  • 5TIMBERLAND - W Score (out of 100) 87.4
    The Stratham, N.H.-based company will expand its higher-priced Timberland Boot Co. line with women's looks for fall 2009, WWD's sister publication, Footwear News, reported last month. "Hitting stores in September, the women's line will consist of 12 styles of boots and shoes incorporating organic canvas, Horween leathers and fabric details and ribbons," FN said. The styles will range in price from $170 to $340 and will be available at timberland.com, as well as at selected retailers worldwide. "This brand has such a loyal following already, there's no doubt," Williams said. "People are hiking, running and biking more during the recession, and the brand has been profiting from this trend."


  • 6GUESS - W Score (out of 100) 87.0
    This Los Angeles-based apparel line made its name in the Eighties with the introduction of its slim-fit, zippered, stone-washed Marilyn jean design. Now Guess plans on tailoring its denim assortment to those shoppers looking for greater value from premium denim. Guess will increase the percentage of denim in company stores to 40 percent from 30 percent, "space that will be freed up as the company replaces tailored jackets, pants and skirts, as well as fancy shirts and dresses," WWD said last month. However, dresses will still appear in holiday collections. "The company's focus is now on a midtier price zone between $108 and $148, which co-founder Paul Marciano and [vice president of design John] Landis believe will enable Guess to grab market share from other labels," WWD noted.


  • 7AMAZON.COM (BOOKS ONLY) - W Score (out of 100) 86.9
    The company's innovation in the book category has been seen not just with its successful book sales, but also with the introduction of its own proprietary line of Kindle readers. WWD said last month that fiscal 2008 saw net income rise 9 percent to $225 million, "some of which was due to the popularity of the Kindle, Amazon's e-book reader." Gross margin was 20.66 percent. The site is offering savings of as much as 45 percent on certain bestsellers, including "New Moon" (book two of the "Twilight" series) by Stephenie Meyer, and the nonfiction title "Renegade: The Making of a President" by Richard Wolffe.


  • 8TJ MAXX - W Score (out of 100) 85.3
    "TJ Maxx is a smart, well-positioned company - especially during the recession - because it's got the oversupply of brands, and they have great deals that customers of all income levels can take advantage of," Williams said. Pam Danziger, president of Unity Marketing, told WWD in March, "The fact that it's got a cool factor to its pieces, which never stay in the store for long, gives consumers even more reason to shop there." Parent TJX Cos. Inc.'s president and chief executive officer, Carol Meyrowitz, told the annual shareholders meeting last week, "For me, it's still about one thing: execution." Meyrowitz said the company could be positioned to gain share in a shrinking retail sector this year.


  • 9ABERCROMBIE & FITCH - W Score (out of 100) 84.6
    "While their economic performance has been struggling, from the consumer and branding standpoint, they're still going strong," Williams said. However, A&F has been confronted by fashion missteps and weakened by high prices in a fiercely promotional market. The New Albany, Ohio-based firm reported a net loss of $26.8 million, or 31 cents a diluted share, for the period ended May 2. The loss came against a profit of $62.1 million, or 69 cents a share, in the year-ago period. Sales slid 23.5 percent, to $612.1 million from $800.2 million, and same-store sales contracted 24 percent. "We've spent years building our brands to compete on quality, aspiration and a unique store experience, not on price," chairman and ceo Mike Jeffries said on the company earnings call.


  • 10DSW SHOES - W Score (out of 100) 81.8
    "The assortment that this brand is offering is still clearly resonating with consumers," Williams said. "While economic performance is down for the company, we're still seeing a spike from consumer interest in the brand." Columbus, Ohio-based DSW Inc. reported net income of $7.1 million, or 16 cents a diluted share, for the first quarter ended May 2, compared with a profit of $10.3 million, or 23 cents, in the year-ago period. The firm's new president and ceo, Michael MacDonald, outlined opportunities to improve sales trends during a conference call with analysts, including improved store formats, implementing a size system for customers and further developing DSW's Web site. MacDonald singled out the men's and accessories businesses as possible growth avenues.

Pasted from <http://www.wwd.com/retail-news/the-most-competitive-retailers-2164328?navSection=retail-news>


Web shoppers could access a top 50 retailer web site with a high broadband connection an average of 98.46% of the time in May. That availability compares with an average of 94.34% for a low broadband connection and 74.64% for dial-up, says Gomez Inc. The web retailer with the best high broadband availability rate in May was ColdwaterCreek.com at 99.73%, followed by TigerDirect.com at 99.63%, and Chadwicks.com and Zappos.com at 99.57%. ColdwaterCreek.com also had the most consistent low broadband and dial-up availability in May at 97.57% and 95.52%, respectively.

Pasted from <http://www.internetretailer.com/dailyNews.asp?id=30737>


Most Interesting Shoe of the Week - The Zaha Hadid for Lacoste footwear collaboration began with a digitized interpretation of the iconic crocodile logo. Hadid's research team then used this as a basis to explore a series of surfaces with repeated patterns. 'The design expression behind the collaboration with Lacoste footwear allows the evolution of dynamic fluid grids,' explains Hadid. 'When wrapped around the shape of a foot, these expand and contract to negotiate and adapt to the body ergonomically. In doing so a landscape emerges, undulating and radiating as it merges seamlessly with the body.' To achieve this tactile landscape effect, Zaha's team designed a series of metal plates depicting the desired wave pattern. These plates were subsequently utilised to apply a combination of heat embossing and debossing techniques to the calf leather, thus rendering the topography in relief. The effect is visible on the uppers, curving around the top of the toe, and on the exterior fascia of each shoe. A similar pattern is replicated on the sole of the shoe, crafted of moulded rubber, which is designed to reflect points at which the foot naturally exerts pressure. The heel itself is the minimum depth possible in footwear construction, emphasising the slender and streamlined profile of the design.  The shoes also feature the unique Zaha Hadid for Lacoste logo, visibly wrapped around the side of the heel and on the in-sock. The sleek and sophisticated black box which packages the product also bears an embossed version of the same logo. The shoes are unisex in design; the women's are available in black and purple, whilst the men's come in black and navy. A limited-edition boot version of the Zaha Hadid for LACOSTE shoe will be available exclusively at such high-end boutiques as Colette in Paris, Dover Street Market in London and 10 Corso Como in Milan in July 2009 as a preview. The main shoe line will be appearing in stores worldwide from September 2009. This exclusive collaboration will be highlighted in store by a suite of bespoke material designed to compliment and enhance the themes and colours of the project.

Pasted from <http://www.sneakerfreaker.com/sneaker-releases/Zaha-Hadid-For-Lacoste/12/>


Crackberry Hysteria

"I did envisage being this successful as a player, but not all the hysteria around it off the golf course."
-Tiger Woods
I had the privilege of playing golf yesterday afternoon with one of the most thoughtful investors I have met in this business. As we we're having a few post game refreshments, he made a very simple point - "isn't it great to not have to always be checking your blackberry?"
I don't use a crackberry (when I left Carlyle's hedge fund in 2007, I actually gave it to my son Jack to gnaw on). Away from this game of daily risk management, there is a perpetual hysteria that dominates Wall Street/Washington's groupthink. This is an operating culture that we created. As my good friend pointed out on the 10th hole fairway yesterday, "its really just a function of this business becoming all about size and scope."
Bigger, as we have learned, is no longer better. Bigger, in many cases,  creates stagnation. Bigger, doesn't allow one to change as the facts are changing . If you want to invest successfully in an increasingly interconnected global market place of interacting factors, you have to be able to move.
What if you can't move? Well, Tiger Woods reminds us that that's precisely when you should proactively change what you are doing. Woods has completely shelved his entire golf swing 3 times since he came pro. I wonder what his reaction would be to the idea that someone playing Wall Street's game HAS TO BE fully invested!
When investors HAVE TO BE something, creative destruction takes hold. Timmy Geithner and De Banking Club aside, this is America don't forget. Most capitalists I have met in my life, don't HAVE TO do anything other than have the mental flexibility to change and keep looking for new ideas.
Today's market is dominated by investors HAVING TO HAVE a risk management process, because the one they told people they had didn't work. Every day you can almost feel the need for analysts and investors alike to HAVE TO make calls on bubbles. Everyone is a bubble watcher, AFTER they blew up in one - now that's progress!
Today's US market reality is this:
1.       The US stock market is consolidating for its next real move

2.       Volatility (VIX) has been smashed

3.       Volumes have dried up to the bone

As a result, while everyone is running around investor conferences trying to figure out where the Great Depression narrative went. Chinese demand is accelerating and so are the prices of the things that they (The Client) need.
In the face of plenty an energy all-star telling us that oil's move "isn't fundamental", the US Dollar continues to fundamentally break down and spike that price of oil to higher-highs. Meanwhile, Dr. Copper is hitting a new YTD high this morning as well, trading up to $2.40/lb, taking its YTD performance to +65%.
The Client (China) needs oil and copper. That, bear friend British Philosopher, is "fundamental". HAVING TO tell your investors that everything you get right in this business is "fundamental" while everything that goes against you isn't based on fundamentals is , sadly, what some asset management structures that are too big to move HAVE TO say.
The Client (China) doesn't HAVE TO buy any more US Treasuries. The Client doesn't HAVE to ignore Russia's handshake. The Client doesn't HAVE TO do anything.
The US stock market doesn't HAVE TO crash right here and now. The US stock market doesn't HAVE TO have another +40% short squeeze. The US stock market's winners in 2009 don't HAVE TO do anything.
In the intermediate term (3 months or less), I think we're moving into one of the more predictable trading ranges that we have seen in years. No, I don't HAVE TO trade it - but, for now, I will...
My immediate term upside target for the SP500 is +2% from yesterday's 939 close. My downside support target is -2% lower, at 922. Play the game, and capitalize on the consensus hysteria. Crackberry updates are a lagging indicator.
Best of luck out there today,


QQQQ - PowerShares NASDAQ 100 - We bought Qs on 6/10 as a better way to be long the US market than the SP500. The index includes companies with better balance sheets that don't need as much financial leverage.

EWA - iShares Australia- EWA has a nice dividend yield of about 5% on the trailing 12-months.  With RBA rate cuts showing signs of working and a commodity based economy with proximity to China's reacceleration, there are a lot of ways to win being long Australia.

FXA -CurrencyShares Australian Dollar Trust-Thanks to recovering Chinese demand for commodities, the sure handed management of RBA Governor Glenn Stevens and comparatively modest consumer debt levels -Australia's GDP continued to expand in Q1 while other industrialized economies saw double digit declines.  As with Canada, we like the Australian economy as an offset to the toxic US balance sheet.  

XLV - SPDR Healthcare -Healthcare looks positive from a TREND duration. We bought XLV on 6/08 to get long the safety trade.

EWC - iShares Canada - We want to own what THE client (China) needs, namely commodities, as China builds out its infrastructure. Canada will benefit from commodity reflation, especially as the USD breaks down. We're net positive Harper's leadership, which diverges from Canada's large government recent history, and believe next year's Olympics in resource rich British Columbia should provide a positive catalyst for investors to get long the country.   

XLE - SPDR Energy - We bought Energy on 6/05. We think it works higher if the Buck breaks down.  Bullish TRADE and TREND remain.

CAF - Morgan Stanley China Fund - A closed-end fund providing exposure to the Shanghai A share market, we use CAF tactically to ride the wave of returning confidence among domestic Chinese investors fed by the stimulus package. To date the Chinese have shown leadership and a proactive response to the global recession, and now their number one priority is to offset contracting external demand with domestic growth.

TIP- iShares TIPS - The iShares etf, TIP, which is 90% invested in the inflation protected sector of the US Treasury Market currently offers a compelling yield on TTM basis of 5.89%. We believe that future inflation expectations are currently mispriced and that TIPS are a compelling way to own yield on an inflation protected basis, especially in the context of our re-flation thesis.

GLD - SPDR GOLD -We bought more gold on 5/5. The inflation protection is what we're long here looking ahead 6-9 months. In the intermediate term, we like the safety trade too.


SHY - iShares 1-3 Year Treasury Bonds - If you pull up a three year chart of 2-Year Treasuries you'll see the massive macro Trend of interest rates starting to move in the opposite direction. We call this chart the "Queen Mary" and its new-found positive slope means that America's cost of capital will start to go up, implying that access to capital will tighten. Yields are going to continue to make higher-highs and higher lows until consensus gets realistic.

UUP - U.S. Dollar Index - We believe that the US Dollar is the leading indicator for the US stock market. In the immediate term, what is bad for the US Dollar should be good for the stock market. Longer term, the burgeoning U.S. government debt balance will be negative for the greenback.

 XLU - SPDR Utilities - As long term bond yields breakout to the upside, Utility investments are the relative yield loser.

EWW - iShares Mexico - We're short Mexico due in part to the repercussions of the media's manic Swine flu fear.  The country's dependence on export revenues is decidedly bearish due to volatility of crude prices and when considering that the country's main oil producer, PEMEX, has substantial debt to pay down and its production capacity has declined since 2004. Additionally, the potential geo-political risks associated with the burgeoning power of regional drug lords signals that the country's economy is under serious duress.


PKF Hospitality Research released an updated forecast this morning detailing their bearish view of 2010.  This is the first forecast we have seen, other than our own, forecasting negative 2010 RevPAR (including prior PKF reports).  The president of PKF, Mark Woodworth, states that 2011 is the next time we will see "actual growth".  We have been predicting a down year in 2010 since January.

While we have got company, we are still outnumbered.  Sell-side firms continue to project flat-to-positive RevPAR growth in their models.  A recent upgrade was based partly on a "modest RevPAR recovery" in 2010.  Although certain economic indicators have shown signs of improvement (or at least less deterioration) recently, the lodging industry still faces significant challenges that we alluded to in our 01/29/2009 post, "A GIRAFFE FROM HEAD TO TAIL".

We expect any potential increase in demand in 2010 to be driven by lower rates.  Convention business booked in 2009 will be a drag on RevPAR for a couple of years.  Furthermore, ongoing corporate negotiations for 2010 are occurring in a buyer's market.  

The chart below shows the recent RevPAR trend in the United States.  Unlike most consumer discretionary sectors, there is scant evidence of sustainable sequential improvement in lodging demand.


JOIN THE CLUB - us revpar

Early Look

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Muscle Flexed? But How Much Muscle?

We had been in the midst of writing the note below that summarizes Russia's increased criticism of the U.S. Dollar as the global reserve currency when we picked up on newswires that Russia may actually start swapping U.S. Treasuries for IMF Debt.  As the dollar continues to fall holders of US debt are rightfully seeking alternative vehicles. Russia has aggressively floated the idea of a supranational currency in the last ten days and countries from China to Brazil have voiced reducing their dependence on the dollar.  While we very much believe "The Burning of the Buck" will have serious implications for global markets, Russia's recent bark (rhetoric) may be larger than its bite. The first chart below is an important call-out, showing the diminutive Russian Holding of US Treasury Debt as a percentage of total US debt.

The broader note below gives more context on this situation.

 Muscle Flexed? But How Much Muscle? - russ1


Muscle Flexing

Russia calls for a new global currency to replace the Greenback. Could rhetoric turn into action? (Yes, per above!)

Over the last week Russian President Dmitry Medvedev has openly questioned the future of the US dollar as the global currency, proposing both a "supranational" currency and the possibility of Ruble-Yuan swaps, a position he broached to western media and as host to an international economic forum in St. Petersburg over the weekend.  And the debate has moved beyond the Kremlin in recent days with IMF First Deputy Managing Director John Lipsky saying that it's possible to take such a "revolutionary" step over time and World Bank President Robert Zoellick saying that China may diversify its holdings.

Here it's important to note that both Lipsky and Zoellick take mild stances, yet the possibility of a replacement currency to the USD is a real one. Yet if we stick with Medvedev's proposition it's clear that even if he doesn't have a firm idea of what a supranational currency would consist of, he does understand  the value of using explicit soft power to heighten existing tensions between the US and China over the value of China's US debt holdings, especially following Geithner's failed trip to win over The Client, China.

But who is Russia hoping will benefit?

Ironically it's Russia who stands to benefit from the current devaluation of the USD, but not by issuing a new currency it can exchange in.  Commodity-rich Russia is a major producer of world's oil supply, much of which is sold and traded in US dollars. As any commodity trader would tell you: when the base currency devalues, more dollars chase the commodity, lifting the price. While we don't discount other factors that play into the price of oil, including supply and geo-political risk factors, at a very basic level, it appears antithetical for Russia to want to replace the USD in the immediate term, as Russia benefits from the Reflation trade!

The chart below comparing the US dollar index versus the price of front month contracts of light sweet crude over ten years demonstrates a pretty accurate picture of the reflation trade. The correlation coefficient (R squared) is -0.8, signifying a high negative correlation between the USD and oil.   Interestingly the more that Medvedev continues to talk down the dollar, the more likely it will continue to plunge = advantage Russia.

Matthew Hedrick

Muscle Flexed? But How Much Muscle? - russ2


Chinese Inflation data was positive; the chatter about trade and production data is even more bullish

CPI data released last evening showed that Chinese consumer prices declined on a year-over-year basis for the fourth consecutive month in May, registering at -1.4%. Producer prices for May arrived at -7.2% Y/Y,  the lowest Y/Y level in decades. With the assumption that rising energy commodity price levels will taper any threat of deflation, the market reaction to the data was uniformly positive.

Last night's rally in Shanghai had less to do with today's data and  more to do with May import and export data scheduled for release by the NBS tomorrow, as well as production numbers to be released on June 11th.  Somewhat absurdly, last night Ming Pao Daily reported that industrial output grew 8.9% y/y in May based on "unspecified sources". That's right, Chinese economic data "whisper numbers" are now driving momentum in Shanghai.

With mounting anecdotal evidence from shipping sources and base metal exporters suggest that the initial flurry of activity after the initial rush of credit stimulus in January and February may be contracting somewhat, not to mention the dearth of reliable data from Central and Western production and transport hubs,  we are frankly suspicious of any and all bullish rumors being promoted by anyone no matter how well placed their sources. 

We are long Chinese equities via the close end fund CAF , and remain bullish on the recovery process there despite peripheral negative data points creeping  into the margin from the credit and commodity markets. There is an old adage, "buy on rumors,  sell on news" - pay close attention to when we make changes in our portfolio in case we decide to heed it.


Andrew Barber




Seasonality Matters

We had two questions this afternoon about the importance of these weekly apparel sales numbers as it relates to seasonality. Good question. We're just coming off the seasonally weakest 5-week period of the year. The period following back-to-school is a close second. Numbers start to ramp more meaningfully in the week we're in right now. This is when weekly datapoints matter more. Thanks for the questions. Keep 'em coming...


Seasonality Matters - SportScan Seasonality 6 09 2


Casey Flavin