What's New Today in Retail (11/7)

Takeaway: Sports apparel solid. Adidas rev miss, inventories dicey. WMT PR takes punch to the jaw. Labor unrest building in Bangladesh and Indonesia.

EVENTS TO WATCH OVER THE NEXT 24 HOURS

 

FNP - Earnings Call: Thursday 10/7 10:00 am

BEBE - Earnings Call: Thursday 10/7 4:30 pm

TUMI - Earnings Call: Thursday 10/7 4:30 pm

 

ECONOMIC DATA

 

Athletic Apparel Data

 

Takeaway: Trends in athletic apparel are like a broken record -- but not broken. The industry put up 27% growth vs last year. We estimate that about 1,000bps is due to easy comparisons from a storm-impacted 2012. But still…a mid-teens organic growth rate is nothing to shake a stick at.  The biggest surprise for the week was Reebok, which has been a perennial dog. But over the past three weeks its' sales went from -28% to +22% to +74%.  UnderArmour is also putting up some solid numbers. One thing worth noting is that this Sportscan data tends to include the more marginal retailers in its sample.  Perversely, we almost don't want to see a high-end brand like UA do too well with this sample.

 

What's New Today in Retail (11/7) - chart1 11 7

What's New Today in Retail (11/7) - chart2 11 7

What's New Today in Retail (11/7) - chart3 11 7

What's New Today in Retail (11/7) - chart4 11 7

 

COMPANY NEWS

 

ADS - Adidas looks to World Cup as sales and profit drop

(http://www.theguardian.com/business/2013/nov/07/adidas-sales-profit-drop-world-cup)

 

  • "Adidas, the world's second largest maker of sports gear behind Nike, said third quarter operating profit dropped 6% on sales down 7%, hit by distribution problems in Russia, currency effects and poor sales of golfing products."
  • "Adding to its woes, it has been outperformed by Nike on its home turf. Nike reported an 8% rise in sales in western Europe in its first fiscal quarter to the end of August, compared with a fall of 6% for Adidas at constant currencies in its third quarter."
  • "One bright spot for Adidas this year has been the Reebok brand, which saw sales rise 5% in the three months to the end of September, the second quarter in a row of growth as a renewed focus on fitness pays off."

 

Takeaway: Adidas puts up a slight miss -- entirely driven by top line weakness. (looks like the stronger Reebok apparel sell-through is happening just in time). The company missed top line expectations in every region of the world except Western Europe. Most troubling is the company's inventory levels, as its sales/inventory spread plummeted by 1,500bp. As evidenced by the SIGMA chart below, Adibok is looking at bloated inventories and positive margins. That's one of the worst places to be -- as the margin level gives management some degree of confidence that it can clear inventory profitably. But that it almost never the case. The company reiterated guidance…we'd question that move.

 

What's New Today in Retail (11/7) - chart5 11 7

 

AEO - American Eagle Outfitters Updates Third Quarter EPS Guidance to $0.19

(http://phx.corporate-ir.net/phoenix.zhtml?c=81256&p=irol-newsArticle&ID=1873334&highlight=)

 

  • "American Eagle Outfitters, Inc. is updating its third quarter EPS outlook to $0.19 per diluted share, which excludes non-cash charges associated with closing a distribution center, as previously disclosed. This compares to EPS from continuing operations of $0.41 for the same period last year. The company’s previous EPS guidance was $0.14 to $0.16. The revised outlook reflects slightly better than expected margin results."
  • "Total net revenue for the thirteen weeks ended November 2, 2013 decreased 6% to $857 million from $910 million for the thirteen weeks ended October 27, 2012. Total consolidated comparable sales decreased 5%, including sales from AEO direct, against a 10% comparable sales increase last year. AEO direct sales increased 17% during the period."

 

Takeaway: This was pretty much AEO kicking sand in Abercrombie's face, which slashed guidance yesterday in its latest admission that it can't do anything right.

 

NKE - Nike Names New Vice President of Action Sports 

(http://www.sportsonesource.com/news/article_home.asp?Prod=1&section=1&id=48660)

 

  • "Nike, Inc. announced that effective immediately Scott LeClair, currently VP and GM of Nike Skate and Nike Snow, will become Nike's new VP of Action Sports. He will be responsible for leading the category as well as for Hurley International, LLC. Nike veteran Roger Wyett, 56, who was previously in the role, has decided to retire."
  • "LeClair, 47, joined Nike in 1992 and has led Nike's skate and snow business since June 2012. He has held previous roles in North America and was GM of Nike's West Territory based in Los Angeles, before moving to Japan to lead the running category and then the merchandising function. He will report to Jayme Martin, VP & GM of global categories."

 

Takeaway: Roger Wyatt is a loss for Nike. The level of role shuffling inside the company right now is unprecedented in Nike's history. We don't love it.

 

WMT - Wal-Mart Web Glitch Creates a Frenzy

(http://online.wsj.com/news/articles/SB10001424052702303309504579182221073798190?mod=WSJ_business_whatsNews)

 

  • "Wal-Mart Stores Inc. suffered from a website glitch Wednesday that set off a shopping frenzy as customers tried to snap up expensive items, such as computer monitors and televisions, for less than $10."
  • "The retailer said it would not honor customer orders. Instead, it will send these customers a $10 Wal-Mart gift card in the next five days that can be used toward future purchases.
  • 'Given the wide discrepancy in pricing, we are notifying customers who ordered these items that their orders have been cancelled and that they'll be refunded in full,' said spokesman Ravi Jariwala. 'We apologize again for any inconvenience this may have caused our customers.'"
  • "The error led to very low prices being displayed for items such as treadmills that normally cost $600 being offered at $33, televisions priced at $2,000 on sale for a couple hundred dollars, and videogames such as 'Grand Theft Auto V' that typically sell for $60, going for $18 on Walmart.com."

 

Takeaway: WMT simply can't get out of it's own way. First there was the debit card debacle several weeks back, and now this. It's hardly going to hurt customer loyalty in aggregate, but for a company that is in a constant battle to enhance its image, this hardly helps.

 

GPS - Old Navy will give away $1 million to one lucky Black Friday shopper

(http://blogs.marketwatch.com/behindthestorefront/2013/11/06/old-navy-will-give-away-1-million-to-one-lucky-black-friday-shopper/)

 

  • "Gap Inc.’s. Old Navy discount clothing chain will be giving  the first 500 shoppers in line at North American stores when they open at 7 p.m. on Thanksgiving Day the chance to enter a sweepstakes to win $1 million. The sweepstakes game is titled 'Overnight Millionaire.'"
  • "To be sure, Old Navy has hosted $1 million giveaway contests in the past for other occasions, even though it never had an actual winner, spokeswoman Andrea Hicklin said, adding the Overnight Millionaire sweepstakes will guarantee a winner and is the largest giveaway the company has ever had for Black Friday."

 

Takeaway: The sad reality is that this will probably work.  If it doesn’t, it's a bad sign for GPS.

 

7936 - Asics Americas Revenues Jump in Six Months 

(http://www.sportsonesource.com/news/article_home.asp?Prod=1&section=4&id=48665)

 

  • "Asics  Corp. reported revenues grew 21.4 percent in the first six months through Sept. 30, to ¥153.66 billion ($1.56 bn) from ¥126.6 billion a year ago. The gains were due to strong sales of running shoes in the Americas, Europe and other regions and the effect of foreign exchange rates. On a currency-neutral basis, sales grew 12.0 percent in the Americas and gained 7.3 percent in Europe. Sales dipped slightly in Japan."

 

Takeaway: We see so many US companies getting dinged by FX. But here's the inverse. US sales up 12% -- and is the strongest-performing region. Yet consolidated sales are up 21%.

 

COST - Costco Wholesale Corporation Reports October Sales Results

(http://phx.corporate-ir.net/phoenix.zhtml?c=83830&p=irol-newsArticle&ID=1873524&highlight=)

 

  • "Costco Wholesale Corporation today reported net sales of $8.15 billion for the month of October, the four weeks ended November 3, 2013, an increase of six percent from $7.66 billion during the similar four-week period last year."
  • "For the nine weeks ended November 3, 2013, the Company reported net sales of $18.01 billion, an increase of six percent from $17.00 billion during the similar period last year."

Comps

  • US - 4% (4 weeks), 4% (9 weeks)
  • Intl - 3% (4 weeks), 1% (9 weeks)
  • Total - 3% (4 weeks), 3% (9 weeks)

Comps ex. Gas & FX

  • US - 5% (4 weeks), 5% (9 weeks)
  • Intl - 7% (4 weeks), 6% (9 weeks)
  • Total - 6% (4 weeks), 6% (9 weeks)

 

Takeaway: Note how the big delta in sales is entirely FX-related…per the comment above on Asics.  Gas is slightly hurting reported comps as well -- something that will only intensify in the coming two quarters as we anniversary a spike in oil in Jan-Mar of 2012.

 

INDUSTRY NEWS

 

BANGLADESH: Factories threaten shutdown over wage plans

(http://www.just-style.com/news/factories-threaten-shutdown-over-wage-plans_id119645.aspx?lk=dm&utm_source=daily-html&utm_medium=email&utm_campaign=06-11-2013&utm_term=id83599)

 

  • "Bangladesh's apparel manufacturers have reacted angrily to plans announced this week to raise the minimum wage for millions of garment workers by 77%."
  • "Factory owners have threatened to shut down all facilities if the government-appointed national wage board does not review its recommendation to lift wages to BDT5,300 (US$68.17) within the next 15 days."
  • "'The country's ready-made garment (RMG) sector is not in a position to afford this amount,' says Atiqul Islam, president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA).
  • The BGMEA chief also said the proposed new minimum wage for entry-level workers would be 'suicidal' for the sector."
  • "'We'll request the board to revise its proposal to BDT4,500 (US$57.88) as the minimum wage,' Islam said. "If it is not solved within 15 days, the BGMEA and the BKMEA will announce shutdown of all factories.'"
  • "Islam also claims the country's garment sector will lose 37% of its competitiveness if the recommended wage is implemented, since the cost of production has increased by 13% over the last few years."
  • "Meanwhile, more than 50 factories closed yesterday (5 November) as several thousand apparel workers went on the rampage in the Gazipur industrial belt, protesting that the latest wage proposal is still too low."

 

Indonesian Workers Stage Massive Protests

(https://www.sourcingjournalonline.com/indonesian-workers-stage-massive-protests/)

 

  • "A recent two-day nationwide strike of Indonesian workers demanded an increase in wages, health insurance coverage and an end to violations of labor outsourcing laws and new legislation to protect workers’ rights."
  • "Workers across the board – garment, textile, teachers, transport and other skilled, semi-skilled and non-skilled laborers – formed a coalition of  employees who participated in the protest."
  • "Although some three million workers were expected to strike, less than 50,000 reportedly took part in the walk-offs and shutdowns."