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COMPANY HIGHLIGHTS

M, JCP, KSS - Internet Traffic

Takeaway: Retail numbers per ICSC and Redbook show that the last few weeks have been relatively strong. But it's interesting to see that Internet traffic has ticked down ever so slightly. This might very well be seasonal (we're looking into it), but on a relative basis, we see that JC Penney is still within striking distance of Macy's. That's good for both of them. KSS not only remains behind the pack, but it appeared to tick down before the peer group over the past three weeks. Not enough to draw a major conclusion. But enough for us to remain confident in our KSS short.

Retail Callouts (7/3): KSS M JCP COH TGT LULU APP AdiBok - Chart1 7 3 2014

LULU - Lululemon Founder Explores Buyout

(http://online.wsj.com/articles/lululemon-founders-advisers-sounding-out-about-buyout-1404336451)

"Advisers to Lululemon Athletica Inc. founder Dennis "Chip" Wilson have been sounding out private-equity firms, including Leonard Green & Partners, about taking the yoga-gear maker private..."

Takeaway: Right in line with our thesis -- keeping in mind that a buyout is the least likely of all the outcomes we outlined on June 25 when we presented why LULU is worthy of being on our Best Ideas List as a long. We think that a strategic buyer is twice as likely as a 'Chip-led and PE-supported' buyout. But the greatest likelihood is that Wilson fails outright in his effort to control or sell the company, and he therefore defaults to selling all his stock. That's the highest return move for shareholders. See our separate LULU note from this morning for our rationale.

Retail Callouts (7/3): KSS M JCP COH TGT LULU APP AdiBok - Chart2 7 3 14

APP - Ousted American Apparel CEO Dov Charney Hands Over His Entire Stake To A Hedge Fund

(http://www.businessinsider.com/r-exclusive-ousted-american-apparel-ceo-hands-over-stake-to-hedge-fund-2014-02)

"Dov Charney has handed over his entire stake and voting rights in the struggling retailer to Standard General LP, enabling the fund to negotiate directly with the independent directors over the company's future, two sources close to the matter said on Wednesday."

Takeaway: Charney would probably get nowhere with the Board on his own. Makes perfect sense for him to designate someone who could be more effective.  Standard General has never been a holder before its recent 2Q filing. But 98% of its fund is Media General (MEG) which it bought over the past six months. The other two stocks are American Apparel, and the other staple of retail excellence that we call Radio Shack. 

TGT - Leave the Guns Outside, Target Asks

(http://online.wsj.com/articles/target-asks-customers-to-keep-guns-out-of-stores-1404311690)

"Target Corp. on Wednesday said it would "respectfully" ask customers to not bring guns into its stores, "even in communities where it is permitted by law," responding to a month-long campaign from a gun-control group."

Takeaway: This is such a hairy issue -- and one where we certainly won't take sides. But the reality is that allowing customers with gun permits to carry inside its stores clearly ruffles feathers with the soccer Mom crowd. But many -- if not most -- would shop there anyway. Unfortunately, the 4.8mm members of the NRA won't be too pleased with this decision, and might boycott Target outright.  This is a tough call for Target, or any retailer for that matter.

COH - Lew Frankfort's Role at Coach Inc. Shifts to Part-time

(http://www.wwd.com/business-news/human-resources/frankforts-coach-role-shifts-to-part-time-7783040?module=hp-business)

"Lew Frankfort’s role as executive chairman of Coach Inc. is moving to part-time from full-time and his salary to $500,000 from $1.5 million."

Takeaway: Let me get this straight, the stock has lost 40% of its value in 12-months, and the company is still paying Frankfort $500k to work half as much as he has been? In the grand scheme of corporate governance issues, this is hardly egregious. But definitely seems odd.

ADS, EBAY, AMZN - Adidas lifts ban on sales via eBay, other online sites

(http://www.reuters.com/article/2014/07/01/us-adidas-internet-idUSKBN0F64LG20140701)

""We have decided to extend our e-commerce guidelines to also include open market places: if our retail partners adhere to our criteria, there will be no restriction for online sales in any channel," Adidas said"

Takeaway: It's rarely a good sign when a company relaxes standards on selling through channels that it previously banned because they threatened the health of its business. It's possible, of course, that Adidas has finally devised a system to manage these accounts profitably. It's also possible that it simply needs the sales. We'll see how it's dot.com margins shape up in the coming quarters.

OTHER NEWS

KR - Kroger to Buy Vitacost for $280 Million

(http://www.bloomberg.com/news/2014-07-02/kroger-to-buy-vitacost-com-for-280-million.html)

Kroger Co., the largest U.S. supermarket chain, agreed to buy online retailer Vitacost.com Inc. (VITC) for $280 million to add a new channel for selling nutrition and healthy-living products.

FIVE - Five Below Announces Departure of Jeffrey Moore, EVP Merchandising

(http://investor.fivebelow.com/common/mobile/iphone/releasedetail.cfm?ReleaseID=857675&CompanyID=AMDA-11NSLL&MobileID=Five)

"Below, Inc., the leading retailer of trend-right, high-quality, extreme-value merchandise for pre-teens, teens and beyond, today announced the departure of Jeffrey Moore, EVP of Merchandising."