EVENTS TO WATCH
LULU: Consumers Challenge Our Bearish View - Friday 1/10 1:00pm EST
We reversed course and turned bearish on LULU in November for several reasons - such as concern over increased competitive pressure, waning relative value proposition, lack of focus inside the company, and the financial cost (and margin implication) for focus to return. But the purpose of this Black Book is not to tout our bear case, but rather to step back, open up our thought process, and challenge our thesis. We'll present our key issues to consumers in an unbiased non-leading way, and then we'll see how LULU customers chime in. We don't know what the results will be yet, but based on the results we expect to either a) back off of our bearish view, or b) gain conviction that the business is likely to get worse before it gets better. We're equally open to either option. The data will speak for itself.
TCS - Earnings Call: Tuesday 1/7 4:30 pm
ECONOMIC DATA
ICSC - Chain Store Sales Index
Takeaway: This reading is simply bad. Numbers are still growing, which is good, but the growth rate isn't even in the same ball park as what we saw over the past two years. Our sense -- which unfortunately we cannot yet quantify -- is that this shows a dramatic shift to online shopping both pre and post holiday. Yes, we've been shopping online for years. But we think that online as a percent of total went parabolic this year. When we look at the 2013 holiday season in retrospect, it will be known as the point in time where bricks & mortar really started to take it on the chin. What this also goes to show is that so many 'sales monitoring' data sources that the Street has relied upon for years are losing relevance -- fast.
COMPANY NEWS
JOSB, MW - Jos. A. Bank Urges Shareholders to Take no Action With Respect to Men's Wearhouse Tender Offer or Director Nominees
(http://phx.corporate-ir.net/phoenix.zhtml?c=113815&p=irol-newsArticle&ID=1888188&highlight=)
- "The Board of Directors of Jos. A. Bank Clothiers, Inc. today confirmed that The Men's Wearhouse, Inc. has commenced an unsolicited tender offer to acquire all outstanding common shares of the Company at a price of $57.50 per share."
- "The Board said that, consistent with its fiduciary duties, it will carefully review all aspects of the Men's Wearhouse offer in consultation with its financial and legal advisors and make a recommendation to shareholders, which will be outlined in a Statement on Schedule 14D-9 filed with the Securities and Exchange Commission on or before January 17, 2014."
- "The Company's stockholders are advised to take no action on the tender offer until the Company's Board of Directors has announced its recommendation to stockholders."
Takeaway: So JOSB says it will uphold its fiduciary duties and fully evaluate the MW offer on its own merits. Does anyone want to bet that they come out against it after that fiduciary evaluation?
UA - UA has big presence at US Short Track Speed Skating Olympic Trials
Takeaway: Short track speed skating has emerged as on of the most exciting events of the winter Olympics -- thanks in large part to Apolo Anton Ohno, who was a Nike poster-boy. But there's a changing of the guard. Whether you look at the men's or women's competitors, UnderArmour's logo completely dominated in the Olympic Trials this past weekend. The only catch is that UA seems to have put its logo on the wrong side -- when the athletes are constantly making left turns on such a compressed track, the TV has a better shot at capturing the logo when its on the right side. But it made up for it by super-sizing the logo, which rivals the massive polo ponies Ralph Lauren uses at the US Open.
PVH - PVH CORP. Announces License Agreement with Axis Golf Pty. Limited for IZOD Brand
(http://www.pvh.com/investor_relations_press_release_article.aspx?reqid=1888312)
- "PVH Corp. announced that it had entered into a license agreement with Axis Golf Pty. Limited under which Axis Golf will market and distribute men’s sportswear, golf apparel and related accessories under the IZOD brand in Australia, New Zealand, Fiji, and other South Pacific islands. The initial term of the license agreement runs through December 2018."
- "IZOD products will be sold at Golf World and Golf Mart, two golf retail store chains owned by an affiliate of Axis Golf and into selected golf retail, sports retail, department stores and IZOD stores to be operated by Axis Golf. The license permits Axis Golf to manufacture, market and distribute IZOD dress shirts, neckwear, and underwear, in addition to the categories mentioned above, and distribute belts, headwear, watches, umbrellas and flip flops purchased from other licensees of IZOD across the region."
Takeaway: On one hand, we have to hand it to PVH -- these guys are striking new license deals across its portfolio at the speed of light. But on the flip side, the scope of this deal seems extremely broad. The 5-year deal basically allows the licensee to design, manufacture and sell Izod products across categories. We hope that PVH is maintaining the right to veto any product designs that it thinks are inconsistent with the brand. In fairness, the contract includes minimum sales hurdles on which royalties are generated. If Axis misses minimums due to poor product planning, then the royalty rate goes up, before ultimately going back to PVH if it doesn't perform.
9983 - Fast Retailing Dec sales rise 4.1%
(http://www.fibre2fashion.com/news/garment-company-news/newsdetails.aspx?news_id=157966)
- "Fast Retailing announces December 2013 sales report. December 2013 same-store sales increased by1.1% year on year while sales at our own stores increased by 3.7%. Total sales including online sales increased by 4.1%."
Takeaway: These numbers don't seem impressive at face value. But keep in mind that we're talking about a Japanese company here. Any positive comp is good news. Granted, we suspect that most of the comp was driven by its International operations -- most notably US and Western Europe. But we'll take what we can get on this one. For those unfamiliar with the name, its primary concept is UNIQLO -- the same brand that sponsors Novak Djokovic. Here's some useless trivia for you… The company started off with the name Unique Clothing Warehouse. But they shortened it to UniClo. But when they registered the subsidiary in Hong Kong, there was a clerical error that substituted the 'C' with a 'Q'. The embraced the mistake and never changed back.
SHLD - Sears And Kmart Shoppers Can Now Score Rewards Points By Getting Fit
(http://www.chicagogrid.com/reviews/tech/sears-kmart-shop-your-way-rewards-fitstudio/)
- "Starting Friday, members of Sears’ loyalty program can earn points toward purchases at Sears and Kmart by logging into the Hoffman Estates-based retailer’s fitness site, FitStudio.com, and tracking their physical activity."
- "The Points for Progress program works with fitness apps and devices — the device must be a Fitbit or BodyMedia brand, both sold by Sears — and with Netpulse-enabled fitness equipment at more than 500 gyms in the U.S. and Canada."
Takeaway: We're fans of any initiative that is designed to boost fitness/activity levels -- even for Sears. But we question whether the average Sears customer will actually care -- especially when a significant purchase is required to earn points. Nonetheless, the company will likely get a tax credit, which is good because it needs every dollar it can get.
OXM - Tommy Bahama Dives Deep Into Footwear
(http://www.wwd.com/footwear-news/markets/tommy-bahama-dives-deep-into-footwear-7331379)
- "Tommy Bahama...just relaunched its footwear collection to include everything from flip-flops and boat shoes to espadrilles."
- "For spring ’14, women’s footwear features ocean-inspired elements, such as flip-flops with beaded starfish uppers, boat-shoe inspired espadrilles and cork-bottom platform slides. On the men’s side, offerings include barefoot driving mocs, canvas slip-ons and fisherman sandals."
- "Currently, men’s accounts for 60 percent of the footwear mix and retails from $58 to $198. Women’s product is priced from $28 to $148."
Takeaway: The irony that Tommy Bahama makes a splash about warm-weather footwear on one of the coldest days on record.
494 - Li & Fung Sets Up Factory And Worker Safety Unit
- "Li & Fung Ltd. has created a new business unit to focus on factory and worker safety."
- "The new unit, called Vendor Support Services, is part of the firm's new three year business plan that will be disclosed more fully when the company reports full-year results in March."
- "The new unit will be led by group chairman Dr. William K. Fung. It will incorporate the firm's existing range of support services to factories."
- "'As the leading sourcing company in the world, we feel our responsibility is to play an even bigger role in bringing about and speeding up systematic positive change in the industry,' Fung said."
Takeaway: The guy is right. This is the right thing from a workplace safety perspective -- that's obvious. But it also raises the bar for virtually everyone else in the industry, many of whom can't financially afford to keep up. Ironically, by driving forward a workplace safety agenda, Li & Fung could shake out some marginal capacity in this business.
Loehmann's - Loehmann's IP Assets Sold
(http://www.wwd.com/retail-news/financial/loehmanns-ip-assets-sold-7335182?module=hp-topstories)
- "According to bankruptcy court records docketed on Monday, Esopus Creek Value Series Fund LP is the successful bidder for the Loehmann’s intellectual property assets and customer lists. Madison Capital Holdings won the bidding for the 39 store leases and a joint venture among SB Capital Group, Tiger Capital Group and A&G Realty Partners has acquired the inventory that will be liquidated, furniture and fixtures, accounts receivable and cash in a court-approved auction held on Friday and Saturday. The auction results are still subject to Manhattan bankruptcy court approval this afternoon."
Takeaway: So few retailers that go bankrupt actually go away. But make no mistake, Loehmann's is history. Unlike what we've seen with consumer electronics retailers like Circuit City that go under and many locations are reborn as similar shops -- like PC Richard -- we think it's pretty safe to assume that the lion's share of this capacity will leave the apparel industry for quite some time.
INDUSTRY NEWS
More Than $250M Lost During Cambodia Strikes
- "The Cambodian apparel industry suffered estimated losses of more than $250 million in sales and investment during the nearly two-week nationwide strikes staged by its workforce to protest for higher wages."
