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UA: SENTIMENT PLACED THE WRONG BET

28 JULY 2009

TODAY’S CALL OUT

Positive factors outweigh negative by 5 to 1. We would need to have seen the opposite to take this stock down.

UA’s revenue beat, EPS beat, guide-up and clean inventory position is going to frustrate plenty of folks today who are negative on the name – and trust me – there are plenty.  ALL of them will focus on the one negative…”how the heck could footwear be down 18%?”  Yes, that’s certainly a valid point. That number was below my estimate. But one that is being answered by the management change announced late last week and the hiring of Gene McCarthy as SVP footwear (the best footwear free agent out there). Find me any long term investor that owns the stock that now no longer thinks one that this is a remarkable opportunity for this company that that are proactively preparing to capture. Also, let me point out that 3 out of every 5 key bear case points thrown back at me over the past six months has been that core apparel ‘simply is not growing.’  Well, the +16% return to growth we saw this quarter in apparel is going to suck the wind out of that sail…

Anyway anyone wants to slice it…this is a very very positive result.

LEVINE’S LOW DOWN

Some Notable Call Outs

- In a rare cross marketing effort between retailers, Foot Locker and Office Depot are collaborating on a back to school promotion. Presumably in an effort to leverage the traffic in two of the most important categories for the season, each is offering a discount for a cross purchase. It’s hard to think of many examples of retailers promoting each other, however with zero overlap between footwear and school supplies this appears to make some sense. Customers making a purchase at Footlocker will receive a coupon for $10 off a $30 purchase at Office Depot. For shoppers purchasing at Office Depot, they will receive a 20% off coupon for a purchase at Footlocker.

- DKS acquired six additional stores in Oregon, adding to the single store it is currently in that market. The former Joe’s Sports, Outdoor, & More locations are expected to open this fall. We mentioned a few weeks ago that DKS was poking around at the now-bankrupt Joe’s real estate, but this is the first indication that the company is taking multiple units in the pacific northwest. With 20 new store openings originally expected for 2009, we suspect the opportunistic entry is providing incremental growth opportunities beyond original expectations.

- In meetings with LIZ management yesterday, CEO Bill McComb suggested the likelihood that we see a significant pickup in markdowns over 2H, driven by the need to drive traffic (and not due to inventories which remain very clean).

MORNING NEWS 

- Pakistan is going to release a new textile policy to boost exports in the next three year - The policy will detail plans to hike exports to $25 billion in the three-year period, and would address issues regarding updating machinery, developing infrastructure and boosting human resources to enhance the industry's international competition. <fashionnetasia.com>

- Thirteen Malaysian trade associations have raised concerns over the new foreign labour to the Minister of International Trade and Industry - Some of the issues which have been raised by these trade organisations include freeze on foreign labour intake and the proposed doubling up of levy on foreign workers to be borne by employers. Andrew Hong, CEO of Malaysian Textile Manufacturers Association said, "All associations based in Malaysia have joined their hands to raise their voice on a common issue of levy fee imposed on the companies ... they hope to get positive result from government to revert back to the old policy, but still are not sure about the results". <fashionnetasia.com>

- EU Trade Commissioner soon to determine whether to extend duties on mainland Chinese and Vietnamese footwear - The debate whether these measures should be continued or not bitterly divides European producers and importers. Any decision taken will inevitably offend a large number of interested parties in the EU. Hong Kong's business community will recall that duties worth 16.5% for footwear from mainland China  and 10% for footwear from Vietnam, entered into force in October 2006 and are set to expire on 3 January 2010, unless the ongoing review decides that measures should be continued. A majority of around 15 Member States are opposed to the continuation of measures including Austria, Belgium, Czech Republic, Cyprus, Denmark, Estonia, Finland, Germany, Ireland, Latvia, Luxembourg, Malta, the Netherlands, Sweden and the UK. In view of this opposition, it would be unlikely that Commissioner Ashton would make a decision without gathering majority support among the Member States. <fashionnetasia.com>

- The SGB Retail Top 100 list has some big changes from prior years - The turmoil of the last year has certainly had its impact on the retailers in the market, but there were as many opportunities as challenges this year.  Dick’s Sporting Goods once again took the top spot for full-line sporting goods stores - though the gap with arch-nemesis The Sports Authority narrowed just a tad.  Dick’s Sporting Goods has tempered store opening plans for this year after growing square footage in the double-digits again in 2008, but The Sports Authority has taken a more aggressive approach to the new stores as well, adding a net increase of 29 stores, including 11 stores in one day in August last year.  The mall, for the most part, is a place that has been getting healthier after years of rapid expansion and the eventual bursting of the retail real estate bubble.  The main players are all limiting store growth, instead focusing on expense controls and the renegotiation of leases when available.  There are some estimates that as much as 40% of the mall athletic specialty stores could be renegotiated, remodeled, re-named or shuttered this year. Jimmy Jazz, the New York-based urban retailer, posted the highest growth percentage for 2008 as they continue their rapid expansion into Florida and the Southeast and Midwest regions.  Jazz shows no sign of slowing down in 2009 after just completing a deal through an affiliated business to take the Man Alive stores from The Finish Line - a transaction that could add another 75 doors to the retailer’s portfolio.  The rest of the top high fliers in revenue growth owed their growth to the red-hot Internet business or specialty retail as Backcountry.com, Athleta, Lululemon, and Zappos.com rounded out the top five growth stories of the year. Still, the tough business environment - particularly at retail - took its toll as dozens of small specialty shops disappeared from the landscape.  The pain wasn’t reserved for the small guy though, as Sportsman’s Warehouse was forced to shutter or sell a large number of stores and Joe’s Sports & Outdoors made it through the year only to find its 31 stores liquidated by the time this list went to print.  Joe’s made it onto the SGB Top 100 list for one last time, if only to better express the opportunity that awaits other retailers in the Northwest. <sportsonesource.com>

UA: SENTIMENT PLACED THE WRONG BET - SGB retail top 100 2009

- Slowdown in merger and acquisition activity in the retail, apparel, footwear and restaurants sector - Merger and acquisition activity in the retail, apparel, footwear and restaurants sector fell sharply during the first half of the year, putting 2009 on track to be the slowest M&A year of the 21st century so far. According to a quarterly report by Robert W. Baird & Co.’s investment banking department, the number of disclosed M&A deals in the U.S. for less than $1 billion, considered “middle market,” dropped 37.7% to 43 from 69 during the first six months of the year. The value of the middle-market deals within the retail, apparel, footwear and restaurants sector fell 17.7%.  If current trends hold, 2009 would set new lows for both deal volume and value. Deal value peaked in 1999 at $1.57 trillion, according to Baird, but came close to matching that level in 2007, when deal value hit $1.51 trillion. The greatest number of disclosed deals in the last 10 years was 6,040 in 2000. At its current pace, M&A activity in the retail-restaurant sector easily would fall below the slowest year of the decade, 2002, when a total of 108 disclosed deals came through with a value of $15.25 billion.<wwd.com/business-news>

- UK bears at credit ratings agency claim recent positive trends are unsustainable and downturn may last through 2011 - A leading UK credit ratings agency has dismissed recent signs of life on the high street as unsustainable, predicting that the downturn may continue through to 2011. Fitch played down recent positive trading figures from a number of firms including fashion chain Next, which said that fine weather in the first half of its trading year had added between 2% and 3% to sales. But the ratings agency said the upturn was temporary as a later Easter, better weather and many early sales conspired to give trading an artificial boost. Fitch added that retailers may have tied themselves in knots with the early sales, which left margins squeezed and firms backed into a corner to keep promotions or suffer shoppers looking elsewhere after becoming accustomed to price cuts. <drapersonline.com>

- August is set to be a “weak” month for UK retail sales, according to figures compiled by the CBI - UK Retail sales fell for the third consecutive month in the year to July, with little respite forecast by retailers for August, according to the CBI’s Distributive Trades Survey. 32% of retailer respondents said that year-on-year sales volumes increased during the year to July, while 47% said that they were down.  27% of retailers forecast that sales would be below seasonal norms in August. The three month moving average of sales volumes was negative at a balance of -16% and is expected to drop further in August to -21%. <retail-week.com>

- Fast Swimsuit ban will take place in 2010 - The Fédération Internationale de Natation (FINA) has agreed to ban the record-breaking swimsuit technology that led to 108 world records last year and almost 30 already this year, according to reports from several sources including the Associated Press. The new rule will not take effect until 2010, as the 13th FINA World Championship is currently underway in Rome.  The ruling means that all use of non-textile fabrics will be barred by Jan. 1, 2010.  The argument for the ruling is that the non-textile suits, made from polyurethane, provide more speed and buoyancy to the swimmers, according to several published reports.  Yet swimsuit makers may argue that advances in sport technology can only benefit the sport and to deny access to these technologies would be putting the sport back decades to before it existed. <sportsonesource.com>

- Speedo expressed frustration over new swimsuit ban - Speedo blasted the Fédération Internationale de Natation (FINA) move to ban swimsuit technology that led to numerous world records over the last year. Among other points, Speedo said, "Any move which seems to take the sport back two decades – such as a possible return to the traditional female swimsuit and male jammer - is a retrograde step that could be detrimental to the future of swimming." <sportsonesource.com>

- Nike's management gets lower compensation - Lower earnings last year translated into smaller paychecks for Nike Inc.’s chief executive officer and the president of the Nike brand. Mark Parker, president and ceo of Nike, saw his total compensation decline 17% to $7.3 million from $8.8 million the year before. Although his base pay rose 6.3% to $1.5 million and his stock and option awards gained 4.4% to a total of $4.8 million, these couldn’t make up for a nearly two-thirds reduction in his nonequity incentive plan compensation, to $900,000 from nearly $2.7 million. Parker’s long-term incentive compensation, one of two components of the nonequity package, rose to $900,000 from $750,000 in fiscal 2008, but annual incentive compensation, tied to company performance, shrank to zero from $1.9 million. For Parker and his fellow top executives to qualify for the annual payout, Nike would have had to have posted yearend earnings before income taxes of $2.47 billion. However, Nike’s pretax profits fell to $1.96 billion, shutting out Parker and the other principals. <wwd.com/business-news>

- LVMH accidently preannounces, posts Q2 flat sales and modest sales growth in 2H while also experiencing heavy destocking by distributors - LVMH reported a 23% decline in first-half profits, despite a modest sales gain, as its wines, spirits, watches and jewelry businesses were hurt by heavy destocking by distributors. But the French luxury group said it still expects to gain market share in 2009 because of product launches, expansion in new markets and cost containments. A spokesman for LVMH said the company had to publish the earnings earlier than scheduled after they were mistakenly released. Sales in the period rose 0.2% helped by strong global demand for Louis Vuitton bags and a good performance by the Sephora beauty chain. In the second quarter, sales were flat but fashion and leather goods sales grew 8%. Louis Vuitton bags and luggage had a “particularly exceptional” first half of the year, said LVMH, as the unit reported double-digit growth and strengthened its position across all regions. The brand also received a boost from Japanese shoppers, who took advantage of the strengthening yen by making purchases abroad. <wwd.com/business-news>

- The recession’s reach seems to be forcing the City That Never Sleeps to dress more relaxed - The one-two combo of a decline in black-tie parties and benefits and the upswing in at-home entertaining is changing the way women dress up at night. That’s not necessarily such a bad thing, according to some fashion insiders — many of whom now have no qualms about wearing daytime pieces at night. Dresses with detachable accessories also fit the bill for post-work festivities. All in all, many Americans seem to be warming up to a more low-key lifestyle. <wwd.com/markets-news>

- Ebay takes advantage of vacant retail space through pop-up store whose lifespan is short - Ebay on Monday began filling with products a 5,000-square-foot three-dimensional equivalent of its online self at 3 West 57th Street. EBay, with platforms for trading goods and services auction-style, payments and communications, wanted people to see what just a fraction of its inventory would look like in a store — even if only for five days. “They’ve taken this fabulous retail space among all these great neighbors and decided to create the brick-and-mortar experience of what eBay is,” a spokeswoman said. “There will be ‘wow’ items, including lots of clothing, shoes and accessories.” The company said its holiday preview event would showcase a diverse selection of new and used merchandise from Louis Vuitton, Apple and Barneys New York, which, coincidentally, happen to operate stores within blocks of the eBay pop-up. Ebay is leasing space in a neighborhood with a high pedigree. Bergdorf Goodman is just east of the space, which previously housed auction house Phillips, de Pury & Luxembourg. The location, said the spokeswoman, “is at the physical and metaphorical intersection of shopping, pop culture, high style and creativity.” <wwd.com/markets-news>

- Lacoste Footwear president resigns - Gary Malamet has resigned from his position as president of Lacoste Footwear, a wholly owned subsidiary of Pentland USA Inc., based in New Hyde Park, N.Y. Malamet, who joined the company in January 2007, was responsible for overseeing operations in the U.S. and Canada. A replacement has not yet been announced.  <wwd.com/footwear-news>

- VF Corp. named David Conn president of VF Retail Licensed Brands - Conn is the former EVP of Iconix Brand Group and also served in senior marketing roles at Columbia House and Candie’s Inc. In his newly created role, Conn will seek out new retailers for the company’s licensed business. “Partnering with leading retailers is one of the cornerstones of VF’s growth strategy,” Mike Gannaway, VP of VF Direct/Customer Teams, said in a statement. “Beyond our core national brand strategy, we see additional opportunities for growth with key partners through the introduction of new brands under a licensed business model. David brings a unique set of skills, capabilities and brand licensing experience to VF that will prove effective in leading our efforts in this new endeavor.” <wwd.com/footwear-news>

- LaCrosse Footwear posted a massive beat at $0.26 when the street was at -$0.01 - This is the first company we have seen that has beaten on a revenue basis.  Although BOOT beat big time on EPS, here are some reservations about the implications of the Q2 09’s results and the company’s future looking forward: 1) Sales were only a beat because of increased military orders which boosted work/occupational sales up 26% while their non military leveraged outdoor category revenue was down 22%, 2) inventories were completely out of control being up 35% while sales were only up 7.5%, 3) BOOT’s cap ex is on the rise which is completely opposite to the entire footwear and apparel industry. 

- Rocky Brands misses earnings on lower sales - Cautious inventory commitments and decreased consumer spending contributed to sales and earnings losses at Rocky Brands Inc. in the second quarter. For the three months ended June 30, Rocky Brands reported a net loss of $1.4 million, or 25 cents a share, versus earnings of $700,000, or 13 cents, during the year-ago period. Sales at the Nelsonville, Ohio-based company dropped 15 percent to $51.2 million, compared with $60.5 million last year. Sales in wholesale were down 11 percent to $37.9 million, while retail sales decreased 24 percent to $12.3 million for the quarter. “Sales were down as retailers remained cautious with inventory commitments as the result of decreases in consumer spending and store traffic,” Mike Brooks, chairman and CEO of Rocky Brands, said in a statement. <wwd.com/footwear-news>

- Christian Lacroix SNC received a serious bid from Italy’s Borletti Group - The administrator of Christian Lacroix SNC said Monday it has received a “serious” bid from Italy’s Borletti Group, the owner of department stores La Rinascente and Printemps, in association with the designer. Monday was the deadline to lodge offers for the couture house, which has been in administration after filing for protection against creditors in May. A commercial court is due to rule in September on the offers, including Borletti’s. A bid from French turnaround firm Bernard Krief Consultants, which last week said it was planning to make an offer for the fashion house, has been deemed unsatisfactory, said a spokeswoman for administrator Regis Valliot. <wwd.com/business-news>

- Cartier `Not Sure Worst Is Over' for Jewelry Market as Slowdown Persists - Cartier, the biggest brand owned by Cie. Financiere Richemont SA, is prepared for a prolonged slowdown in the jewelry market and lower sales this year, with more workers set to work part-time hours if needed, according to U.K. Managing Director Arnaud Bamberger. <bloomberg.com/news>

- Wal-Mart selling exclusive Foreigners Comeback CD - Can Walmart work its magic for yet another '70s rock act? The retail giant's exclusive September 29 release of Foreigner's Can't Slow Down will be its first major exclusive since AC/DC's Black Ice in October. The album (Foreigner's first since 1995's Mr. Moonlight) has much in common with Journey's 2008 Walmart-only release, Revelation. Like its predecessor, Can't Slow Down will be a three-disc set that features a CD of new material, a concert DVD and a best-of collection. But whereas Revelation included a CD of rerecorded Journey favorites, Foreigner remixed the band's original master recordings to make its hits sound more contemporary. Perhaps most noticeable to longtime fans of both bands, each release features a replacement lead singer -- in Foreigner's case, Kelly Hansen, who takes the place of original frontman Lou Gramm. Despite the absence of original Journey lead singer Steve Perry, Revelation sold 633,000 copies in the United States, according to Nielsen SoundScan. In its debut week that ended June 8, 2008, it sold nearly 105,000 copies, good enough to reach No. 5 on the Billboard 200 album chart. Black Ice sold 2.1 million U.S. copies, including 784,000 in its debut week that ended October 26, 2008. <brandweek.com>

- Coldwater Creek names a creative director for stores and its retail site - The retailer has named Jerome Jessup to the newly created position of executive president and creative director, with responsibility for brand management, creative services and visual merchandising. <internetretailer.com>

- Zale hires a new marketing leader who will oversee its web site - Zale Corp., a chain and online jewelry retailer, has hired Richard A. Lennox as executive vice president and chief marketing officer. His duties will include overseeing Zale’s e-commerce operation. <internetretailer.com>

- Footwear and apparel from Nice Skate Shoes, or NSS, will launch at Kmart and Sears stores soon - The young men and boys apparel line ($9.99 to $26.99) features street-and skater-themed T-shirts, hoodies, denim, belts, chains and other novelties. NSS shoes ($17.99 to $44.99) are offered in sizes from toddler to adult for men, women and kids. To kick off the apparel launch, Kmart and Sears have created the nationwide rideNSStour, where the best skating talent will compete at 25 skate parks in California, Kentucky, Ohio, Pennsylvania, Maryland, New York, New Jersey and Indiana. <licensemag.com>

- KB Toys intellectual property sale set - Streambank has set an Aug. 6 auction date for the intellectual property sale of KB Toys, which filed for Chapter 11 this past December. No stalking horse bidder has been confirmed. <licensemag.com>

- Bebe enters into licensing agreement with Titan industries for footwear - Mall-based women's apparel retailer Bebe Stores Inc said it entered into a five-year licensing agreement with Titan Industries Inc to design, manufacture and distribute non-casual footwear for women. The Brisbane, California-based retailer said the new bebe shoe collection will be sold in bebe stores in the United States and Canada as well as select specialty and department stores worldwide from early spring 2010. The shoes will be priced in a range from $89 to $169 at retail stores, the company said in a statement. Titan was created in 1998 for the sole purpose of licensing shoes under the bebe brand, Titan's Chief Executive Joe Ouaknine said. Bebe's shares closed at $6.63 Monday on Nasdaq. Pasted from <reuters.com>

- The spring ’10 Polo Ralph Lauren Layette collection offers plenty of options for pint-size preppies - With patent leather loafers, nautical-inspired slip-ons, casual sneakers and gingham-print espadrilles, some of spring’s most classic styles have been shrunk down for the cradle crowd. Produced under license by Boca Raton, Fla.-based BBC International, the collection retails from $20 to $50. <wwd.com/footwear-news>

UA: SENTIMENT PLACED THE WRONG BET - Footwear

RESEARCH EDGE PORTFOLIO: (Comments by Keith McCullough): UA, AZO

07/27/2009 10:49 AM

BUYING UA $24.22

Company reports tomorrow and if this stock gets squeezed I don't want to miss it. Intermediate term TREND line support = $21.98. KM

07/27/2009 10:31 AM

COVERING AZO $154.61

Lampert keeps selling, but we need to trade around this position - short green days; cover red ones. KM

MACRO SECTOR VIEW AND TRADING CALL OUTS

UA: SENTIMENT PLACED THE WRONG BET - SV 7 28 09