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Am I the only one who feels like the chamber is locked and loaded, and the Retail gun is waiting to shoot - but it simply does not know in which direction?  The group was down less than 1% last week, tightly tracking the broader market after a blistering 40% (2.5x to 1) run vs. the S&P. Yes, the stocks have finally stopped going up on good news, but even with all the incremental data points about how weak sales have been over the past 3 weeks, the group is largely looking through it. At 15.5x forward earnings? That does not leave me in my comfort zone.

 I think the crux of it all is that 'the E matters.' I know I said this last week, so I hate to be repetitive. But after being on the road for a few days one of the dominant themes that came out was that people are - without a doubt - looking into 2010. But don't seem to delineate between companies that are proactively making decisions right now to drive 2010 growth and earnings (UA, RL, PSS, WSM), versus others that are cutting SG&A and Capex for the wrong reasons and will be left with little to stand on in 2010 when they need it most. Those will set up to be the best shorts. I've got my eye on easily half a dozen (WRC, JNY, GIL, Adidas - to name a few) - but it is early. Anyone can print good numbers if they so choose, but at what cost?


Key calendar events to look out for.

  • Deutsche Bank - German Austrian Conference, Frankfurt June 23, 2009 - Adidas participating


Some Notable Call Outs

  • Embedded in Carmax's first quarter results were some interesting trends.  SUV sales were up 7% year-over-year, rebounding off of weakness last year when gas prices were still very high.  Compacts, mid-size cars, and trucks decreased by 5% for the quarter.  Interestingly, following the Chrysler bankruptcy, residual values and sales volumes on used vehicles remain unchanged.
  • According to the NRF, Americnas spend an average of $130 on Mother's Day gifts compared to $90 for Dad.
  • While Yue Yuen posted solid interim 2009 results owing to stable demand from brand name customers, further consolidation in the footwear manufacturing industry, and strong domestic sales, the company highlighted a 1.6% decline in sales in the first two months of the 3Q. Should top-line results end up down in Q3, it will be the first time in over 5 years, since March '04. 
  • Smith & Wesson management remarked in its updated Q4 results that demand for handguns and rifles remain strong as evidenced in their growing backlog; however, Barron's suggests the FBI's National Instant Criminal Background Check System reveals slowing trends for background checks suggesting fewer gun sales. While there is no doubt that post-election gun demand has fueled earnings growth, the acquisition of Universal Safety Response is critical to diversifying the company's earning streams and should therefore be less effected than it's close competitor Ruger (NYSE: RGR) when demand wanes.  (call at 5pm today)


ZachHammer's overview of items you're unlikely to find in the general press.

  • Changes in the bankruptcy code have complicated the quest for retail reincarnation - and the evaporation of financing in the past nine months has made it even harder. Since the rewriting of the bankruptcy law in 2005, debtors are in a race against time with a 120-day period to file a plan of reorganization (and the possibility of a 180-day extension) where debtors have an initial 120-day period to assume or reject leases. Previously, there were unlimited extensions to both time periods, as well as more lenders ready to work with the debtors. So now retailers have to make business decisions as soon as they file, and often don't get the chance to operate through the crucial Christmas selling period to determine if they've made the right decisions. If one isn't likely, they've usually pushed for a liquidation, Gottlieb said. Just ask Steve & Barry's, Mervyns and Gottschalks. <http://www.wwd.com/business-news/>
  • The German state of Bavaria has agreed to grant financial aid to the struggling Quelle catalogue business, a subsidiary of the insolvent Arcandor Group. Bavaria agreed to contribute 21 million euros to a planned government guarantee of 50 million euros, or $69.5 million. Quelle currently lacks the funds to print its fall-winter catalogue and to secure orders; Bavaria's 21 million euros would cover the catalogue costs. <http://www.wwd.com/business-news/>
  • Carrefour to Sell or Close 20 Express Stores in Poland, Parkiet Reports - Carrefour SA, Europe's biggest retailer, plans to sell or shut more than 20 Carrefour Express stores in Poland, Parkiet reported, citing Maria Cieslikowska, spokeswoman at Carrefour's Polish unit.  <http://www.bloomberg.com/news/industries/consumer.html>
  • Footwear News, total 2008 pay packages for the highest-paid footwear executives rose 13 percent in 2008, though at a slower pace than the prior year's 14 percent growth. On average, management at the 26 publicly held retailers and vendors tracked earned total pay packages of $3 million last year versus $2.6 million in 2007. The increase was attributable to employment contracts put in place years ago, when business was brighter, guaranteeing their 2008 salary. <http://www.wwd.com/footwear-news/ceo-compensation-what-they-made-2181827?navSection=footwear-news>
  • Sperry Top-Sider's famous boat shoe is celebrating its 75th anniversary in 2010, but executives at the brand are hoping a strategic growth plan will drive sales far beyond next year. Sperry has spent the last 18 months expanding into new markets, introducing new performance technology and growing the women's mix. More specifically, the brand has solidified product and marketing in three areas: American Original, Authentic Performance and Enduring Style. <http://www.wwd.com/footwear-news/ceo-compensation-what-they-made-2181827?navSection=footwear-news>
  • A growing number of footwear brands are committed to "greening" their products, but with an increasingly fractured supply chain, guaranteeing the sustainability of every component, process, and source is no easy feat. Earlier this month, environmental watchdog group Greenpeace released a report (covering 2005 to date) saying that illegal hides were making their way into the footwear supply chain - and mentioning Adidas, Gucci, Nike, Timberland and Clarks as potential, possibly unwitting end users. The report, "Slaughtering the Amazon," alleged that some leather sourced from Brazil originated on illegal cattle ranches in the Amazon rainforest that contribute to deforestation.  <http://www.wwd.com/footwear-news/ceo-compensation-what-they-made-2181827?navSection=footwear-news>
  • Erke, the Chinese tennis apparel company, has reached an agreement to become the designated apparel supplier for Shanghai ATP 1000 matches during 2009-2013. The Shanghai ATP Masters 1000 tournament, which will occur around October each year, is second only to the world's four Grand Slam tennis tournament and regarded as the top tennis tournament in Asian region. <http://www.sportsonesource.com/>
  • Spending, Home Sales in U.S. Probably Rose as Consumers Gained Confidence - Consumer spending in the U.S. probably rose in May for the first time in three months and home sales increased as Americans became more confident the recession will end this year, economists said before reports this week. <http://www.bloomberg.com/news/industries/consumer.html>
  • Kurt Geiger has inked a licensing and distribution deal with US footwear firm Nine West just one month after the US firm severed ties with its former UK partner Shoe Studio Group. <http://www.drapersonline.com/>
  • Skechers recently ran a variety of display advertisement campaigns. It opts to use the services of ad networks to place ads on thousands of sites aggregated by the ad networks across the Internet. For this select group of campaigns, Skechers achieved a 283% return on ad spend, $2.67 million in revenue and 172 million ad impressions. <http://www.internetretailer.com/dailyNews.asp?id=30868>
  • Traffic falls or is flat at top three home and garden retail sites in May -It seems fewer consumers spent time and money cultivating their lawns and gardens in May. As a result, the top three home and garden e-retailers cultivated poor traffic numbers last month. <http://www.internetretailer.com/>
  • Product sales of the 2009 NBA Champion Los Angeles Lakers have surpassed previous championship merchandise sales at New York City's The NBA Store and NBAStore.com. Lakers' product sales more than doubled last year's sales within the first two days after the team won its 15th title, reported the retailer. Meanwhile, adidas and Wheaties have introduced a special-edition Lakers champions T-shirt, featuring a picture of the commemorative box with the entire Lakers' team. <http://www.licensemag.com/licensemag/Sports/Lakers-Merchandise-Sales-Break-Record-Wheaties-Tee/ArticleStandard/Article/detail/604760?contextCategoryId=9996>
  • Ahmedabad, India (popularly known as the city of textile industries) has become a robust retail destination quite recently with the launch of five malls in quick succession. The city has also been witnessing a series of infrastructural development and has already emerged as one of the most promising cities in the country in terms of economic prosperity. The city formally witnessed organised retail boom with the launch of 3.24 lakh square feet Gallops Mall, followed by Himalaya Mall and the trend is enhanced when 4.5 lakh square feet Iscon Mega Mall on SG Highway opened its door for brands including Tommy Hilfiger, Giordano, Esprit, Westside, Benetton, Wills Lifestyle, ColorPlus and Reliance with Mega Mart as one of its anchor tenants, the shopping behaviour of the local residents are getting transformed.  <http://www.indiaretailing.com/news.aspx?Id=3895&Topic=2>

RESEARCH EDGE PORTFOLIO: (Comments by Keith McCullough):


06/19/2009 10:33 AM


My team has done plenty to signal our turning negative on consumer in the last week. Being patient on price was my responsibility. Selling high today. KM


Retail First Look: 6/22/09 - Calendar