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Apples and Oranges: They're Still Both Fruit

I've got to call out two credit facility actions in two days for two different footwear companies - Decker's and Skechers. The details of each suggest that they're hardly similar at face value, but my bigger picture view is that this ties right in with the 2H theme of using improved near term cash flow visibility to either secure better terms with lenders, or trade it for better flexibility in covenant thresholds. We'll see more of this, which I think is bullish for the smaller-cap forgotten names in retail that the market has written off.


DECK credit facility amendments:

It appears that the facility is now 12.5m in aggregate vs. $20mm prior. 

Annual capex max changed to $25m for 2009 and $15mm thereafter from $28m per year.  Net, net indicates some slowing of growth on a go forward basis unless the agreement is amended again.

Lease limitation per year raised from $15m to $20mm.  This is counter to the capex provision.

Addition of a net loss provision of $3m in the June 09 quarter vs. a prior provision which required a minimum quarterly profit of $1m.  This is clearly more flexible on the current quarter and within the current range of Street estimates. Translation - banks don't want companies to breach.

Net, net this looks like a shrinking facility to us, and represents a clear tightening by the bank.  Though important to note that they are not drawn in this revised agreement, and have historically never have used its predecessor. 


The SKX agreement announced yesterday is totally new and incremental to their existing facilities.  This seems more offensive and opportunisitic relative to the DECK agreement.  Additionally it's important to put the scale of the DECK facility (i.e. small) in context with the cash balance of $13/share, no debt.  SKX $5/share cash, no debt.

SKX Details

  • $250mm revolving facility (Wells Fargo and BOA lead underwriters) subject to increase to $300mm
  • Aggregate amount of loan may not exceed "borrowing base" calculated by AR + inventory OR $125-$150mm depending on time of year less certain AP.
  • Interest rate: L + 1%
  • Fee: 0.5%-to-1.0%
  • Must maintain at least $50mm on-hand.


Some Notable Call Outs

- Sure to become a hot news item in the coming weeks is the "Cash for Clunkers" (formally known as CARS, Car Allowance Rebate System) program. The bill has been passed but is not expected to be enacted until July 23rd. This essentially gives consumers either $3500 or $4500 in rebates if they turn in a car averaging 18 mpg or less in return for buying/leasing a new car with a higher mpg rating. The old car will be scrapped and only the scrap value of the vehicle (not trade-in value) will be applied towards the new purchase or lease. Overall, the government has earmarked $1bln in rebates which equates roughly to 250,000 "clunkers" coming out of service. There is already talk of extending the program if it is successful. Given similar programs in Germany, it is likely that consumers will take full advantage of this "stimulus" package/"green" initiative. We expect the buzz surrounding this program to benefit auto retailers with exposure to new car sales and to provide some headline risk for the auto parts retailers. The initial wave of cars scrapped should not have a material impact on the overall supply of older vehicles on the road unless the plan remains in effect for far longer than originally planned.

- The surf/skate/snow lifestyle category appears to be healthy and still growing. Recent announcements from Foot Locker which is opening stores under its recently acquired CCS brand, from K Swiss which is launching a skate division, and from Nike which just opened its first multi-brand retail store in Laguna Beach selling Hurley, Converse, Nike 6.0 and SB all point to a category which stands out as one of the few true product driven stories in retailing. Historically, established brands have had a hard time breaking into the space which is characterized by authenticity. However, the balance sheets and marketing dollars of these larger companies will certainly help to drive market share. Additionally, the market entry by these untraditional players may at some point force additional M&A in the space which is fragmented and made up of numerous small and medium sized private companies.


- Japanese sporting goods maker Mizuno Corp. will shut 200 of 900 retail sites in China this year - The company said in May it plans to shut unprofitable outlets in China in the year ending March 2010. Expansion in the lead-up to the 2008 Beijing Olympics caused Mizuno to book a charge to write down excess inventories last fiscal year. <bloomberg.com/apps/news>

- The Indonesian Industry Ministry aides footwear manufacturing plants with new equipment - The Indonesian Industry Ministry declared nine footwear manufacturers eligible for the government aid to modernize their industrial machinery in order to increase efficiency as well as the productivity. Under this aid program, the government will finance 10% of the new machinery purchases, to the manufacturers. The Ministry will provide over Rp. 4.2 billion to these nine shoe companies. The government has allocated a total of Rp. 55 billion for the year under this aid program. This aid, to enhance the Indonesian industries' capacities, is a part of the government scheme.  <fibre2fashion.com/news>

- American Apparel & Footwear Association wants to continue import ban on Burma - Citing further human rights abuses in Burma, the American Apparel & Footwear Association (AAFA) has called for swift renewal of the Burmese Freedom and Democracy Act of 2003, an expiring import ban on goods from that country. "AAFA once again calls on Congress to follow through on US commitments to human rights and renew economic sanctions against Burma," said AAFA President and CEO Kevin Burke. While the current import ban is set to expire on July 26 this year, Burma continues to be condemned by different organizations and governments for widespread human rights violations such as the recent junta's arrest and persecution of general secretary of the National League for Democracy. <fashionnetasia.com/industryupdate>

- Australian government to help textile, clothing, and footwear small businesses - Australia is granting a total of A$2.6m ($2.1m) to help 68 small businesses become more innovative in the textile, clothing and footwear (TCF) sector. The grants, ranging from A$11,000-A$50,000 and distributed under round four of the government's TCF Small Business Program, will focus on improving the business culture of small businesses in the sector, innovation minister senator Kim Carr said. "The future of Australia's TCF industry lies in becoming more agile, innovative and entrepreneurial," he said. "It is about the development of new products and processes, especially at the high-tech, high-value end of the market." The TCF Small Business Program is providing grants worth A$25m over 10 years. <fashionnetasia.com/industryupdate>

- Indian textile industry disappointed with new budget - The Indian textile industry has been left disappointed by the country's new budget, which executives had hoped would offer them relief from the influences of the global financial crisis. The industry is estimated to have cut up to 1 million jobs over the last year, and RK Dalmia, senior president at Century Textiles & Industries Ltd, said that the news from the budget was mixed, reported in the international press. "There were some positives announced for the textile industry, but the government has also not touched upon many of our demands," he said. Of the moves made, the government announced an extension of the current 2% interest subvention scheme for exporters until March next year, although the industry had called for that to be increased to 4%. <fashionnetasia.com/industryupdate>

- U.K. Consumer Confidence Rose to Eight-Month High in June, Nationwide Says - U.K. consumer confidence rose to an eight-month high in June as shoppers became more hopeful that the economy will emerge from recession, Nationwide Building Society said. <bloomberg.com/news/>

- Honduran apparel industry executives calm US customers - Honduran apparel industry executives arrived Tuesday to tell their U.S. customers that it's business as usual in the apparel sector. The executives were part of a delegation that included Honduran politicians, judicial figures and diplomats. All apparel and textile manufacturing plants are working normally.  Despite continued unrest, there have been no delays of shipments into or out of Honduras and the ports are functioning normally. U.S. companies that manufacture in the Central American country said they continued to monitor the situation but that no disruptions had been reported. The apparel executives in the delegation plan to meet with representatives of the National Retail Federation and members of Congress, Facusse said. Honduras is the fourth largest apparel supplier to the U.S. According to the Commerce Department's Office of Textiles & Apparel, Honduras shipped $603 million of apparel to the U.S. in the first four months of the year. <wwd.com/business-news>

- Skechers expects to break even for 1H 09 - Skechers USA Inc.'s stock inched up on Tuesday after the company said it expects to break even for the first half of 2009 and return to profitability in the back half of the year. The stock closed at $9.30, up 1.4% for the day's trading. David Weinberg, Skechers' COO, said in a statement released early Tuesday, that the "extremely weak global retail environment remains a factor in our performance, as retailers slowed their orders" in the second quarter. But he added that the Manhattan Beach, Calif.-based company would continue to "liquidate excess inventory and clean up our balance sheet." Skechers also on Tuesday announced a new $250 million, four-year, syndicated secured credit facility, arranged by Wells Fargo Foothill, part of Wells Fargo & Co. and Bank of America N.A., a subsidiary of Bank of America Co. <wwd.com/footwear-news>

- Slight uptick in 4th of July Consumer Spending - Consumers spent $4 more per day, on average, the week of the Fourth of July than they did the prior week -- leaving spending 37% less than the same week a year ago. At the same time, job creation showed no improvement and the percentage of Americans rating current economic conditions as "poor" increased four points to 51%. <gallup.com/poll>

- June retail sales looking like a washout - June is looking like a washout for retailers, with cold and rainy weather in many parts of the country keeping consumers homebound. Retailers on Thursday are expected to post a 4.8% drop in same-store-sales for last month, with department stores and some apparel retailers doing most poorly, while discounters appeared to see some resurgence in interest. June's drop would mark the 10th straight month of same-store-sales declines, the longest since Thomson Reuters began collecting the data in 2000.  <online.wsj.com>

- American consumers expect to spend equal to or more than last year at Back to School season - Based on the recent consumer shopping trends survey conducted by The SportsOneSource Group, a clear majority of American consumers expect to spend as much or more for sports and outdoor product for back-to-school this year as compared to last year.  "We talk with retailers every day about where the market is going," said James Hartford, president, CEO and chief market analyst at The SportsOneSource Group.  "There is a great deal of angst about expectations for back-to-school due to the rough May and June business, but these numbers may signal some upside for the retailers in the market." Based on the preliminary data from the survey, nearly 53% of adult respondents with kids under the age of 18 said they planned to spend as much as last year for sports or outdoor footwear, apparel or equipment during the back-to-school period.  About 19% suggested they would spend at least a little less while roughly 28% of the respondents in this group said they would spend at least a little more. <sportsonesource.com/news>

- Nike launches new type of store - Nike Inc. has opened a Nike 6.0, Hurley and Converse concept store at 225 Forest in Laguna Beach with a big focus on customization. The new three-story concept, entitled 225 Forest, marks the first time Hurley, Nike 6.0, Converse and Nike SB are being sold by Nike under one roof. <sportsonesource.com>

- JJB and Sports Direct squabble - Sports Direct deputy chairman Mike Ashley has rejected JJB Sports' version of events surrounding the controversial £1.5m loan he made in 2007 to its chairman Sir David Jones. <drapersonline.com>

- Best Buy gives mobile apps a try - The multichannel retailer is dipping its toe in the waters of the burgeoning realm of mobile apps. It has introduced the Best Buy Weekly Deals mobile app designed for the iPhone and iPod Touch. But the app is not transactional-yet. <internetretailer.com>

- Gift card sales and the economy - The gift card, a symbol of conspicuous consumption before the recession, has become an indicator of economic hard times. Consumer anxieties are playing out in fewer gift cards being purchased this year, less dollar-value being stored on the cards that are bought and a decline in the number of people buying them. Shoppers are seeing gift cards differently as the recession creates disarray in personal finances and prompts concerns about whether certain stores will stay in business after a spate of bankruptcies and the liquidations of retailers such as Fortunoff, Steve & Barry's, Mervyns, Goody's, Gottschalks, Circuit City, Sharper Image and Linens-N-Things. Once a license to indulge, gift cards are increasingly being given for practical purchases like phone bills, food and gasoline. At Wal-Mart stores, shoppers have been "buying more groceries with gift cards" since Christmas, said spokesman John Simley. <wwd.com/business-news>

- Survey of teen mall shopping - An updated survey of 1,687 teenage shoppers across the U.S. in April showed 54% were spending more or about the same as they did in the previous six months, but they were value-conscious and concerned about the economy. 52%  said they were shopping at less expensive stores, 43% reduced spending and 48% were using more coupons at the mall. Despite rising vacancy rates and lower overall sales because of the recession, the mall remains a favored destination for youths ages 12 to 17, according to the study. The first part of the survey, based on questioning in the fourth quarter of last year, found that 71% of teen respondents said they go to the mall to shop, 57% to eat, 49% to socialize and 40% seek entertainment, primarily through movies and video games.  Top 6 of teen shopping preferences for 40 national retail store brands: Old Navy, J.C. Penney, American Eagle Outfitters, Aéropostale, Claire's and Macy's. <wwd.com/retail-news>

- Global mergers and acquisitions activity down significantly in 1H 09 - Global mergers and acquisitions activity fell as the global downturn worsened in the first half of 2009. Data compiled by the research firm Mergermarket showed total deal volume was down 47.4% to 3,800 transactions, compared with the year-ago period, and the value of M&A activity dropped 43.6% to $705.7 billion. Deal volume decreased 51.6% from the peak of 7,880 transactions during the first half of 2007, as total value fell 66% from almost $2 trillion. On a quarter-to-quarter basis, deal volumes have remained steady through 2009, suggesting the number of M&A transactions may have bottomed out.  <wwd.com/business-news>

- Apparel brand Jack Victor acquired assets, inventory, and trademarks of Canadian resource Riviera Inc. - Tailored clothing brand Jack Victor has purchased certain assets, inventory and trademarks of fellow Canadian resource Riviera Inc., a better trouser maker. Terms were not disclosed. Under the agreement, Jack Victor will absorb the 90-year-old company's three labels: Riviera Sport, a weekend-friendly line that retails between $150 and $175; the sartorial Riviera Black collection that includes the brand's toniest fabrics and sells for more than $200, and the Riviera Blue label, which is priced at less than $200. The first Riviera goods made and sold by Jack Victor will hit stores for spring 2010. <wwd.com/business-news>

- Retail and Michael Jackson products - Retailers and apparel vendors are scrambling to get Michael Jackson merchandise into stores to capitalize on fans' hunger for a piece of the iconic pop star who was honored Tuesday at a two-hour memorial service in Los Angeles.  Several stores said they have been inundated by requests for Jackson items. T-shirts were the most coveted apparel picks, although consumers gravitated toward shoes, jackets and gloves emblematic of Jackson's style, as well. Hot Topic Inc., said two licensed men's T-shirts and one women's T are scheduled to be delivered to the City of Industry, Calif.-based teen retailer within the next week.  Stephen Donnelly, vice president and general merchandising manager of women's apparel at Kmart, said after Jackson's death on June 25: "We got a small shipment of Ts to a limited number of stores within one week. We are continuing to react to customer demand with more T-shirt deliveries this week, and will be looking at additional merchandise in-store and online as needed." The staying power of the demand for Jackson-themed apparel was uncertain, but the spike in interest for his music is likely to remain front and center for a prolonged period. <wwd.com/retail-news>

- Jill Sander's and Uniqlo - Jil Sander's much-anticipated collection for Uniqlo has been dubbed +J. On Wednesday, Uniqlo unveiled the name and simple black logo in sans serif font, true to the designer's minimalist sensibility. As reported, the Japanese fast fashion brand, which is owned by Fast Retailing Co. Ltd., and the German designer had to find a creative detour around the fact that fellow Japanese firm Onward Holdings Co. Ltd. owns the designer's former fashion house and retains commercial rights to her full name. Jil Sander's creative role at Uniqlo extends beyond the +J collection to the brand's other apparel and accessories for men and women. But it is understood that the designer is focusing her initial efforts on the fall/winter launch of this newly created collection, flying frequently between her home in Hamburg, Germany and Tokyo. The +J collection will be sold at Uniqlo's flagship stores in major cities and on the brand's own website. <wwd.com/retail-news>

- Children clothing line  to appear at Nordstrom - A children's clothing line based on the picture book artwork of Todd Parr will be exclusively sold in August at Nordstrom department stores nationwide. The collection, under the brand Planet Color by Todd Parr and created by Jen's Ideas, features tees, thermals, embroidered baseball caps and dresses for girls and boys ages 6 months to 6 years old. The apparel will be available later this summer at Nordstrom stores in the Midwest and Northeast.  <licensemag.com/licensemag/Fashion>

- Shaun White and Target team up again - The Shaun White 4 Target® collection will return to Target stores nationwide and online at Target.com on August 15, 2009. Shaun and Target continue their relationship and collaboration in the creation of a stylish, affordable line of T-shirts, woven shirts, shorts and denim jeans for boys and young men. "With the new line, you can definitely see the influence that music, art, skateboarding and travel have on me and the designs we are creating." Trish Adams, senior vice president, Target, adds, "The Shaun White 4 Target collection brings a new element of progressive style to Target. The line is a great addition to our product offering that we're happy to deliver to our guests year-round at very reasonable prices." The continuation of Shaun White 4 Target features a full range of apparel inspired by Shaun's lifestyle and exploration of the world. The collection includes fashionable, inexpensive items with prices ranging from $7.99 for boys' graphic tees to $34.99 for stylish young men's jackets. <prnewswire.com>

- Lindsay Lohan's fragrance exclusively sold at Sephora is being sued - Lindsay Lohan and her business partners have been accused of stealing the formula for Sevin Nyne Tanning Mist. In a complaint filed in federal court in Tampa, Fla., inventor Jennifer Sunday said she pitched the idea to Lohan and the partners this year, the parties entered into a confidentiality agreement and were on the verge of a deal but could not agree on final terms. Sunday alleged that the final product contains "exactly the same or nearly identical ingredients" as her creation and that Lohan has publicly taken credit for the formula. A representative for Sevin Nyne said the company had no comment. Lohan launched the product this spring at Sephora with the help of her personal tanning guru, Lorit Simon, and other partners in Lorit LLC, the spray's parent company.  <wwd.com/business-news>

- Britney Spears pumps up her line exclusively sold at Kohl's in her new music video - Candie's footwear, apparel, jewelry and accessories play a starring role in Britney Spears' new music video for her song "Radar." The brand, which is owned by New York-based Iconix Brand Group, has extended its agreement with the entertainer to include appearing in Candie's fall 2009 TV, print, online and in-store advertising, which will be culled from the "Radar" video. With a posh polo theme, the video was shot on a private horse farm and estate in Santa Monica, Calif. The visual narrative centers around Spears seducing a polo player. Dave Meyers shot the TV commercial, which will debut in late summer, and fashion photographer Matthew Rolston shot the print ad campaign, hitting September magazines. <wwd.com/footwear-news>

Retail First Look: 7/8/09 - Britney Spears Candies

RESEARCH EDGE PORTFOLIO: (Comments by Keith McCullough): WSM

07/07/2009 01:36 PM


Stock getting crushed on low volume. We're hunting for names with M&A optionality that have high short interest and a lot of sell side conjecture. KM


CWTR: Jeffrey Parisian, Senior VP of Administration, sold 3,743shs ($24k) less than 10% of common holdings.


Retail First Look: 7/8/09 - SV 7 8 09