TODAY'S CALL OUT
In a sad sad statement about how my mind works, upon waking up at 4am to yet another rainy morning, my first thought was not about how peaceful it sounded with the rain hitting the trees. But rather "Crap...is weather really going to have to be an issue for the retailers that I'm going to have to spend a single iota of brainpower exploring?" The reality is that sales are increasingly under pressure over the past 2 weeks. This is based on both our discussions with industry sources and was validated by SportscanINFO apparel data yesterday that showed a big downtick last week. Remember that this is the exact time that sales should be picking UP seasonally, and without a strong finish to June we're going to have to deal with excess promotional activity in July. Yes, inventories are in OK shape, but those facts can change easily without the top -line kicking in. Check out our analysis in our note last night.
Ok McGough, do you really expect me to believe that the market does not get a real-time read on these numbers and trends? Isn't it in the stocks already? Of course they do. Certain folks out there already know the exact comp number for key retailers through yesterday (even though they shouldn't). But the reality is that the MVR (Morgan Stanley Retail Index) is only down only 5% over the past week, and while this is 2x the S&P, it is far less of a divergence than we've seen in retail in the past when sales weaken. Are investors looking through the weather? Maybe, but when numbers are printed at a time when stocks have stopped going up on good news, I cannot imagine that it will be a positive event.
Where do I come out? This is not enough to rattle my models and bullish view on cash flow in the coming 9-12 months for apparel/footwear. But near-term I'm more sensitive to sticking with the names where I KNOW there are company-specific levers to grow earnings, and where the Street is grossly off base with earnings expectations. This includes PSS, RL, UA, and even LIZ (despite today's guidance issued in conjunction w/convert deal). US-centric companies without specific levers that have no positive FX exposure to a weakening dollar (ie bricks and mortar retailers) are particularly at risk.
LEVINE'S LOW DOWN
Some Notable Call Outs
- A PVH executive described the divisional consolidation at Macy's in the first quarter as "a little crazy as they've tried to reorganize their divisions and consolidate from seven into one". The merchandise direction on a go forward basis is being led by the former Macy's East. This bodes well for PVH because it was most heavily penetrated with this division and orders are likely to increase for doors that were formally less engaged with the PVH product.
- Last week was the worst year over year change in sports apparel since July 2008. Everything was down at an alarming rate. Sporting goods retailers fell down by 15%, discount/mass channel declined by 40%, and the recently strong family retailer channel decreased by 10%. I call it like it is, and will VERY rarely pull the weather card. But last week's impact was unmistakable. The average temperature was 6-15 degrees cooler than average across virtually the entire US - with warmer temperatures only in Virginia, Georgia and parts of Texas. I won't even begin to call out the rain, because it rained pretty much everywhere.
- We expect designer and luxury brands to continue to partner/collaborate with mass oriented retailers. The latest announcement that Jimmy Choo will create a holiday shoe and accessory line for H&M is yet another example. As luxury remains the hardest hit sector across retail, it is not surprising to see brands augment growth with seasonal and short term deals to boost cash flow and broaden their customer reach. Note yesterdays comments about lux retailers and brands starting to use price as an offensive weapon. They need to be creative elsewhere as well.
ZachHammer's overview of items you're unlikely to find in the general press.
- All things considered, footwear is faring better than apparel in the current economy, according to a new study by The NPD Group <http://www.wwd.com/footwear-news/executive-moves-at-harrys-kcp-aerosoles-2174025?navSection=footwear-news>
- The recession isn't stopping girls from buying new summer clothes in the contemporary arena <http://www.wwd.com/retail-news/carrefour-sets-moscow-store-2175038?navSection=retail-news>
- Arcandor Group, the insolvent German department store, catalogue and travel group, filed applications for bankruptcy proceedings for a further 15 subsidiaries Wednesday <http://www.wwd.com/business-news/arcandor-bankruptcy-hits-more-units-2174536?navSection=business-news>
- After a long struggle with declining sales and high levels of debt, Eddie Bauer Holdings Inc. and eight affiliates filed for Chapter 11 bankruptcy protection <http://www.wwd.com/business-news/arcandor-bankruptcy-hits-more-units-2174536?navSection=business-news>
- Abercrombie & Fitch Co. opted to shutter its 29-store Ruehl concept after a five-year run and a one-month strategic review <http://www.wwd.com/business-news/arcandor-bankruptcy-hits-more-units-2174536?navSection=business-news>
- Pacific Cycle increased its bid to buy Iron Horse Bicycle Co., which is reorganizing in bankruptcy proceedings <http://www.sportsonesource.com/>
- The Sportsman's Warehouse, which is reorganizing in bankruptcy proceedings, is seeking to amend its DIP <http://www.sportsonesource.com/>
- Lisa Montague, who recently quit her post as Mulberry's chief operating officer, has been named chief executive officer at Loewe <http://www.wwd.com/business-news/arcandor-bankruptcy-hits-more-units-2174536?navSection=business-news>
- Pacific Sunwear of California Inc. on Wednesday named Gary H. Schoenfeld, a former top executive at Global Brands Group and Vans Inc., as president and chief executive officer <http://www.wwd.com/business-news/arcandor-bankruptcy-hits-more-units-2174536?navSection=business-news>
- Harrys of London named Giuseppe Bonfiglio as CEO of the men's shoe and accessories company <http://www.wwd.com/footwear-news/executive-moves-at-harrys-kcp-aerosoles-2174025?navSection=footwear-news>
- Kenneth Cole Productions Inc. appointed Scott Currie as VP of global communications, effective June 30 <http://www.wwd.com/footwear-news/executive-moves-at-harrys-kcp-aerosoles-2174025?navSection=footwear-news>
- Sandy Gabriele has been raised to SVP of First Cost, a division of Aerosoles <http://www.wwd.com/footwear-news/executive-moves-at-harrys-kcp-aerosoles-2174025?navSection=footwear-news>
- When Liz Claiborne relaunched its brand this year, 300 or so female consumers informed its marketing decision. Such insights weren't culled from focus groups, but were pulled from online communications. <http://www.brandweek.com/bw/content_display/news-and-features/retail-restaurants/e3i149b78bd47280165f2ab42d9185a958b>
- Indian retail may lose foreign direct investment of up to Rs 400 crore this fiscal because of last week's recommendations by the Parliamentary Panel on Commerce, which has opposed further leeway to the entry of international retail brands in the country <http://www.indiaretailing.com/news.aspx?Topic=1&Id=3898>
- Zappos.com's innovative business approach has put its name on the tips of many marketers' tongues. The only problem is, a lot of consumers either don't know the brand exists or that the firm sells more than shoes.So, the Las Vegas-based retailer has kicked off a review in order to hire an agency to help remedy that problem. <http://www.brandweek.com/bw/content_display/news-and-features/digital/e3i5be7ed32070f5880d0913a4e5b142cb5>
- Amazon this week further enhanced its private label offerings <http://www.brandweek.com/bw/content_display/news-and-features/digital/e3i149b78bd47280165e382b76fa80dd66c>
- The Consumer Product Safety Commission said Wednesday Macy's is voluntarily recalling 33,000 children's hooded sweatshirts and sweaters sold at the department store chain <http://www.wwd.com/business-news/arcandor-bankruptcy-hits-more-units-2174536?navSection=business-news>
- Economic pressure on retail prices kept inflationary fears to a minimum in May <http://www.wwd.com/business-news/arcandor-bankruptcy-hits-more-units-2174536?navSection=business-news>
- Adrenalina, the action sports retailer who placed a bid Pac Sun, failed to takeover another sports chain <http://www.sportsonesource.com/>
- Legendary U.K. retailer George Davies-who launched Next, George at Asda and Per Una in Marks & Spencer-is launching his next project in October called GIVe <http://www.licensemag.com/licensemag/Fashion/George-Davies-Launching-New-Womens-Brand/ArticleStandard/Article/detail/604355?contextCategoryId=9996>
- Payless ShoeSource announced the opening of the first Payless ShoeSource store in the United Arab Emirates <http://www.capitaliq.com/pss/news>
- Carrefour has stepped into the Russian market and opened its first hypermarket in Moscow <http://www.wwd.com/retail-news/carrefour-sets-moscow-store-2175038?navSection=retail-news>
- Tom Ford International establishes a beachhead in the Middle East today, opening a 3,000-square-foot store in the Dubai Mall http://www.wwd.com/retail-news/carrefour-sets-moscow-store-2175038?navSection=retail-news
- Temperley is broadening its reach, aiming to drive sales with two pop-up shops opening this month and an e-commerce site set to bow in July. The British company will open a pop-up store in East Hampton, N.Y., on Friday <http://www.wwd.com/retail-news/carrefour-sets-moscow-store-2175038?navSection=retail-news>
RESEARCH EDGE PORTFOLIO: (Comments by Keith McCullough):
06/17/2009 12:31 PM
SELLING BBBY $28.51
The shorts can't be enjoying this +4.25% squeeze on a day where the world was supposed to be ending. Sell green here and buy it back on a down day. KM
06/17/2009 10:04 AM
BUYING UA $21.28
People freaking out again today, and it continues to bet on McGough's call here on the long side when they do (see his note). Buy low. KM
Insider Trading Activity:
CHS: John Burden, Director, purchased 10,000 shs on a base of 30,000 after a 100% increase in share price YTD.
HLYS: Roger Adams, Founder, continues to wind down holdings (38,600 shs).
CMRG: Ken Ederle, VP& GMM, sold nearly half of his position (17,300 of 37,300 shs).
MACRO SECTOR VIEW AND TRADING CALL OUTS
- Positive divergence between the MVRX +60bps and XLY +140bps versus the S&P -14bps.
- Within Consumer Discretionary, Media and Specialty Retailers continue to outperform to the upside with Luxury Goods companies the only industry with negative absolute performance.
- BGFV rebounded sharply +7% after a 4-day -18.7% selloff.
- ANF +4.7% shares traded higher after company announced credit amendment and closing of Ruehl operations.
- CROX -7.3% shares cool for second straight day following huge run up last week on the back of mgmt roadshow.
- HAR maker of GPS devices continues 2-day -17.4% slide on 2x avg. daily volume following disappointing earnings Monday.