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24 JULY 2009


Irony can be so ironic. I got out of a meeting yesterday talking about Payless, and my last comment before the elevator door closed was how I am lobbying for Matt Rubell at Payless to hire Gene McCarthy – who is the best free agent (and one of the best all around players) in footwear today. Not 30 minutes later, it hit the tape that Kevin Plank just hired McCarthy to head up UA’s footwear business. This is big folks. Why?

  1. The guy ‘gets it’ when it comes to branding. He’s a 17-year Nike veteran who was instrumental in growing Brand Jordan from a shoe to a generation-transcending brand.
  2. The guy understands that one person alone can't change a brand’s perception and direction. It takes capital, heads, common goals and inspirational leadership.  Even at TBL, he only took the job if Jeff Schwartz agreed to give him latitude to build a new organization around ‘Authentic Youth’ (ie the yellow boot business). Gene built a 90-person organization within six months. This would have worked if TBL let him be good at what he does. Instead, at the first sign of success, they promoted him to co-President and in typical TBL fashion they began to take resources away from his original effort.
  3. Is there a risk that UA begins to beef up its footwear organization and takes up SG&A accordingly? Yep. Call this a risk if you’d like, but I think a greater risk is if UA does NOT do this.
  4. Do you think that current investors (who overwhelmingly own it for the big growth opportunity ahead) are going to fault this company for investing in growth and putting capital behind the key point of controversy out there in the market?  I know my answer…

The bottom line is that if you were to ask me for my short list of 5 people that can successfully see UA through this stage of its transition into a great footwear company, Gene would definitely make the cut. If you’re one of the 91% of sell side analysts who are negative, or 30%+ of the float that is short, you should be careful here.


Some Notable Call Outs

- Safeway’s 2Q results were disappointing and the underlying trends are noteworthy. On the company’s conference call, CEO Steve Burd highlighted that the company is experiencing the greatest deflation in 17 years! Some examples of y/y price declines include: milk down 27%, eggs down 15%, cheese down 17%, butter down 14%, apples down 23%, tomatoes down 13%, citrus down 16%, and cherries down 42%. Additionally, Burd highlighted an accelerated trend in customers trading down to lower or opening price points. The trading down behavior is now impacting all categories, ranging from floral to wine.

- Contrary to trends from other footwear wholesalers that are seeing customers order closer to need, Deckers reported that they are pulling shipments forward to meet demand for early fall orders and customer demands requesting earlier deliveries. Despite this commentary on current trends and its impact on current inventory levels, the company is conservatively forecasting a deceleration in topline growth over the back half of the year.


- China's textile and garment exports is expected to recover in the back half of 2009 - China's textile and garment exports is expected to recover for the rest of the year as figures have shown that the global economy has hit the bottom. Textile and garment exports dropped 8.33% to $72.79 billion in H1, with textile exports decreasing by 16.99% to $26.94 billion and garment exports edging down 2.35% to $45.86 billion, according to the government's customs statistics. However, textile exports in June alone were slightly increased by 0.35% but garment exports posted a strong growth of 22.06%. Local financial analysts foresaw an acceleration of textile and garment export growth in H2 due to the forthcoming economic recovery in the US and EU. <fashionnetasia.com>

- U.S. to urge China in talks to develop a non export driven economic growth model - The U.S. will encourage China to move away from an export-driven growth model during talks between officials from the two countries here, set for next week. China’s currency policy also will be up for discussion, officials said. The trade deficit the U.S. has with China decreased significantly in the last year, primarily driven by plummeting consumer demand in the U.S. For the first five months of this year, the U.S. trade deficit with China was $84.6 billion, down from $96.8 billion for the same period in 2008. For the 12-month period through May, the goods trade deficit with China was $255.8 billion, down from the $258.6 billion deficit in the same period a year earlier. <wwd.com/industry-news>

- The largest clothing retailer in Central and Eastern Europe met with Greater China suppliers - LPP, the largest clothing retailer in Central and Eastern Europe, met 31 pre-screened Greater China suppliers at Global Sources' Custom Private Sourcing Event in Shanghai on July 16, 2009. Global Sources' Chairman and CEO, Merle A. Hinrichs, said: "Though the global economy remains weak, we are helping our suppliers offset lost sales by providing unmatched opportunities to diversify their export markets. "Rather than focus on a few markets, suppliers today need to look for opportunities around the world. Moreover, to expand to new markets, they need to find the right buyers. "LPP is another example of the kind of quality-focused companies that participate regularly in Private Sourcing Events. Representing five of the top fashion brands in the region, it can offer suppliers a deeper understanding of local trends, while helping them move up the value chain." Joanna Krakowska, Senior Buyer of LPP S.A., said: "We pride ourselves on offering high quality, high fashion clothing at reasonable prices. It is difficult to find suppliers who can meet our requirements, but we were impressed with the suppliers we met at the event. Private Sourcing Events offer an efficient channel to discover new sources in far less time than we could previously." <prnewswire.com>

- The Indian retail sector's expected annual growth of 9% to reach $521 billion by 2012 will be driven by apparel - Apparel and FMCG segments will be the driving forces for the Indian retail sector, which is likely to grow annually by 9% to reach $521 billion by 2012. "FMCG and apparel sectors contribute the maximum to the growth of the retail market in India," Bharti Retail President and COO Vinod Sawhny said during a FICCI event.  "FMCG in particular has a huge potential to grow... and this will ensure a growth rate of nine per cent year-on-year for the retail sector, which is likely to touch $521 billion by 2012," Sawhny added. He said the Indian retail market is estimated to be around $350 billion, of which modern retail or the organised segment has only four per cent share. "Modern retail will grow much faster, at the rate of 30-35 per cent annually, than the traditional one in the coming years and will be at the size of $54 billion in the next three years," he said. Sawhny said the growth can be attributed to the evolving consumer behaviour, changing market dynamics as well as to easier access to capital by both the retailers and consumers. <economictimes.indiatimes.com>

- Retailers brace for the impact of the increase in federal minimum wage - Retailers are bracing for another financial hit to payroll costs and profits as the last increase in the federal minimum wage rate takes effect today, while advocates maintain it will serve as a big boost to the livelihood of workers, the economy and businesses. The hourly wage rate will increase to $7.25 from $6.55, the third increase in two years, stemming from legislation enacted in 2007. The change will give a boost to workers in 30 states, Washington, D.C., and Puerto Rico, where the state wage rate is currently lower. Facing mounting bankruptcies and consolidations due to the recession, many retailers, particularly in the teen retail segment, will feel the spike in wage pressure with the increase. The impact will vary depending on the size and location of a retailer. “The record shows that labor-intensive industries such as retailers, restaurants and other small businesses are disproportionately impacted by minimum wage increases,” said Green.  <wwd.com/industry-news>

- Outdoor Retailer Show highlights women's sandals and hiking category as growth vehicles - Women’s sandals, hikers and performance travel-oriented sandals were the standouts for spring ’10 at the Outdoor Retailer Show, held here this week. Denise Friend, head women’s footwear buyer at Bothell, Wash.-based REI, said flip-flops of “any color, any style, for any price,” as well as road-running shoes and casual sandals with a dressier feel would be key for spring. She also flagged hiking as an area in which the brand had seen a lot of growth — possibly, she said, due to families planning local outdoor treks for lower-cost vacations. “People are rethinking how they recreate,” she said, identifying lightweight and often low-cut styles from Merrell, Vasque and Keen as key looks. <wwd.com/footwear-news>

- Finish Line Inc. amended and restated its Restated Articles of Incorporation - First, the Restated Articles provide for the conversion of all outstanding high voting Class B Common Shares into Class A Common Shares as of the day after the Company's annual shareholders' meeting to be held in 2012, and eliminate the prior provision in the Company's restated articles of incorporation which automatically converted all Class B Common Shares into Class A Common Shares on a one-to-one basis only once they constituted less than 5% of the total common shares outstanding as of a record date for an annual meeting. Second, the Restated Articles also contain an amendment limiting the aggregate voting power of the Company's Class B Common Shares. Under this provision, if at any time the holders of all Class B Common Shares hold greater than 41% of the total voting power of the Company's shares as of the record date for any shareholders' meeting, then the number of votes per share of each holder of Class B Common Shares will automatically be reduced (on a proportionate basis) so that the holders of Class B Common Shares hold in the aggregate no more than 41% of the Company's total voting power. <capitaliq.com>

- Kellwood secures funding, avoids chapter 11 - Kellwood Co. ended weeks of tense negotiations by completing a $140 million exchange offer with Deutsche Bank and other bondholders. The agreement exchanges old notes that expired on July 15 for new senior secured notes due in 2014. The deal, closed on Thursday, allowed the firm to avoid a bankruptcy filing. As reported, jitters about Kellwood’s solvency arose earlier this month when Deutsche Bank unexpectedly elected not to accept a proposed note swap, even though it played a key role in negotiating its terms. The parties have been in talks for two weeks trying to resolve the matter amicably. “I am very pleased that Deutsche Bank and the other bondholders accepted Kellwood’s exchange offer,” said Michael W. Kramer, Kellwood’s president and chief executive officer. “This will let us continue to build on the operational improvements we have made to date and take advantage of opportunities to grow our brands and our business.” According to Kramer, there are no notes due until the ones just exchanged mature in 2014. “We’re looking forward to taking advantage of [the work we’ve done so far] and move forward,” the ceo told WWD.  <wwd.com/industry-news>

- Hibbett Sports hires new VP of merchandising - Hibbett Sports Inc. announced on Thursday that Rebecca Jones will join the company as VP of merchandising in August. Jones is currently VP and GMM of crafts at Jo-Ann Fabric & Craft stores, a position she’s held since 2003. She was previously VP and DMM at Wal-Mart stores and VP and DMM at Fred Meyer Stores. “Becky Jones complements [the Hibbett] team well with a wealth of successful merchandising experience for large, growing retail organizations operating in markets similar to ours,” CEO Mickey Newsome said in a statement. “We look forward to her contributions to our continued success.” <wwd.com/footwear-news>

- Coldwater Creek hired a new executive vice president and creative director - Coldwater Creek on Thursday tapped Jerome Jessup as executive vice president and creative director as it continues to seek a product formula that will return it to the growth path. Jessup, an industry veteran who worked at Ann Taylor and Gap, will be responsible for brand management, creative services and visual merchandising. The retailer also said it is maintaining its second-quarter loss forecast of 5 cents to 7 cents a share; its prior guidance was a quarterly loss of less than 8 cents a share. <wwd.com/industry-news>

- De Beers Diamond Sales Fall 57% as Global Recession Cuts Demand for Gems - De Beers, the world’s largest diamond company, said first-half rough gem sales fell 57 percent on lower demand after the U.S., Europe and Japan slid into recession. <bloomberg.com>

- French retailers will now be open on Sunday - The French senate narrowly passed a law that will allow more stores to open for business on Sundays, relaxing a ban that has been in place since 1906. The law, which was passed 165 to 159, is far from being applied, however. The opposition Socialist party has asked the Constitutional Council to examine whether the law, which has been backed by President Nicolas Sarkozy, is constitutionally sound.  If introduced, the law would allow all stores in certain designated areas - for example, in large cities like Paris, Lille and Marseille - to open on Sundays, marking a major cultural shift in a country where Sundays traditionally have been dedicated to rest and family activities. French shops are currently required by law to stay closed on Sundays, unless they sell food or are located in tourist areas and are deemed to have “recreational” or “cultural” value, such as bookstores. <wwd.com/industry-news>

- Moody's downgrades Barneys New York - Barneys New York was downgraded by Moody’s Investors Service late Thursday due to liquidity concerns, but the retailer quickly responded by stating it has taken several measures to put itself in a “stronger financial condition.” “Barneys has responded aggressively in the midst of these challenging conditions in the luxury retail market,” a company spokeswoman said. “Controllable operating expenses have been reduced by approximately 10% to 15% on an annualized basis, and capital spending has been reduced by 50% in comparison to last year. Inventory purchases have been reduced for fall 2009 and spring 2010 by over 20%. These measures will put Barneys in a stronger financial position, with anticipated better margins,” she continued. “Our sales trend is improving and we expect a stronger performance in the second half of 2009.”Barneys said Moody’s action is primarily a reflection of its financial performance in the fourth quarter of 2008 and first quarter of 2009. <wwd.com/industry-news>

- Nike Inc. is committed to new leather sourcing guidelines aimed at saving the Amazon rainforest - Nike Inc. announced on Wednesday new leather sourcing guidelines aimed at reducing deforestation in Brazil’s Amazon rainforest. The policy comes in reaction to a Greenpeace report that identified cattle grazing for meat production — and for leather — as contributors to the destruction of the rainforest. In a press release, Nike reported that none of its leather comes from the Amazon basin. However, to ensure that it avoids using leather sourced in the Amazon basin, Nike will require suppliers of Brazilian leather to certify in writing that all cattle come from outside the area in question. Nike will also require all its suppliers to join the Leather Working Group by December 2009 and create an ongoing, traceable and transparent system to ensure by July 1, 2010, that the leather they use comes from outside the Amazon basin.  <wwd.com/footwear-news>

- Austrian high-end hoisery, lingerie, and swimwear company reports weak results in Europe - Wolford AG, the Austrian maker of high-end hosiery, lingerie and swimwear, reported full-year losses and declining sales and forecast difficult markets throughout the current fiscal year. But the company, hit by the ongoing economic downturn, cast a more optimistic outlook for next year. It anticipates moderate growth in the 2010-11 fiscal year. “We can assume that the crisis is only of a temporary nature,” chief executive Holger Dahmen said Friday in a statement. <wwd.com/industry-news>

- Summit Entertainment and Nordstrom have paired to launch an exclusive fashion and jewelry collection this October based on the Nov. 27 release of The Twilight Saga: New Moon - The line, created by Awake, will feature fitted screen-printed tees, tanks and hoodies, as well as T-shirts with film-related lines and imagery. The collection is also rounded out with plaid tunics and jackets. The New Moon collection, retailing from $32 to $58, will be available at Nordstrom's BP. junior department and www.nordstrom.com/newmoon. The jewelry offering will include silver and gold-plated necklaces, bracelets, earrings and key fobs with film-inspired charms. "We hope to bring the Twilight experience into our stores through fashion for our customers," says Loretta Soffe, Nordstrom executive vice president and general merchandise manager for women's apparel. "The line allows customers to show their love for the film by creating a whole look with pieces from the collection or combining with other merchandise to create a unique look of their own." Nordstrom also plans to host kick-off events in November, including advance-screening parties.  <licensemag.com>

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

07/23/2009 12:21 PM


Solid entry point here on the short side if you dont have any on. I was early shorting Bill Ackman, and here again - but I'm cool with that. Short green. KM




  • Steven Temares, CEO, sold ~480,000shs ($16.1mm) after exercising the right to buy 600,000shs more than 50% of common holdings.
  • Eugene Castagna, CFO and Treasurer, sold ~45,000shs ($1.5mm) most of which came from exercising the right to buy 45,000shs roughly 30% of common holdings. 

CTR: John Howe, EVP & CFO, sold 2,000shs ($40k) after exercising the right to buy 4,500shs less than 10% of common holdings.

KSS: John Herma, Director, purchased 2,800shs ($118k) a modest incremental addition to total common holdings.

FINL: David Klapper, Director, sold 60,000shs ($497k) after converting Class B shares representing entire common holdings.