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17 AUGUST 2009


  • ANF is looking to invest in growth almost exclusively outside of the US while likely downsizing the domestic store base in a meaningful way.  On its 2Q conference call, management made it clear that the domestic market is now mature (Author’s note: thanks for that insight, ANF).  In the near term, they are trimming capex to $185m from $200m.  270 of 987 total stores have leases coming due between now and 2010, which will give the company a chance to downsize and cut losses on unprofitable locations.  This puts ANF in the “cutting to buy time” camp.
  • For the first time in a while, we heard there may be some signs that pent-up demand is creeping into shopping patterns.  On JCP’s 2Q conference call, management expressed there are some signs that the consumer is entering a replenishment cycle after cutting back apparel purchases over the past year.  The comments also included some early color on back to school, which suggested the season is off to a decent start.  Management also cautioned that it is only 10 days into the back to school period and too early to be overly optimistic.
  • Sitting with $1bln in buying power, Asian sourcing powerhouse, Li & Fung, is looking to make acquisitions.  The company is focused on targets in the U.S. and Europe and has its eye on the HBA sector.  The company also expects that “big” acquisitions will come at the end of this year or beginning of next year.  That synchs with our view that a short-term cash flow pop will delay major M&A activity in this space for another 4-6 months (i.e. that’s when more companies will HAVE TO sell).
  • URBN’s management team made it clear the company has not sacrificed any investment in the company’s growth initiatives over the past year. After pointing out there have been no layoffs at the company despite the challenging environment, the CEO highlighted ongoing investments which include: a joint venture with an Asian buying agent, enhanced functionality of the ecommerce platform, a new mobile site, investments in social media marketing, a 50% capacity increase in the East Coast distribution center, and development of European infrastructure to support aggressive growth in the near future. The company announced that it expects there could 100+ stores in Europe between the two main brands.  This is the most defined and aggressive view we have heard on non-US growth from URBN.
  • On the surface it appears that KSS’ store growth of 20-25 stores for next year seems very conservative given the company’s aggressive push to open 59 stores this year, including the strategic acquisition of former Mervyn’s location in CA and the Southwest. However, when pressed on the topic management explained that it sees many opportunities materializing over the next 12-18 months and the company will be aggressive in using its balance sheet to pursue market share opportunities through displaced real estate.
  • Opposite KSS, is JC Penney’s view that the real estate market is stressed and it’s better to remain conservative at this time.  The company plans to open 5 stores next year and plans to continue investing primarily in remodels.  Capex will decline again next year, going to $400m from $600m.  The company does not appear to be adopting an opportunistic real estate strategy despite expressing confidence in its off-mall stores.
  • Nordstrom is opportunistically taking advantage of the real estate environment and value conscious consumer with a slightly more aggressive store growth plan for its Rack concept. There are now plans to open 13 stores this year vs. a prior plan for 10. There is also a plan for 12 units in 2010, with a few additional locations to be added soon. Management noted that closures from Linens N’ Things and Circuit City have provided opportunities for new Rack locations.
  • After taking a more bearish view on the 2Q in mid-June when the company announced its convertible offering, LIZ announced an additional $100mm in cost reductions this week based on their 2H outlook. While several mid-tier retailers have suggested that promotional discounting will be no worse than last year based on significantly improved inventory levels, CEO McComb continues to believe that markdowns will be a major issue again this holiday season as the means by which department stores will drive traffic. That said, we met with him several weeks ago, and believe that the direction of LIZ’ financials are inflecting.
  • Capex at WMT is beginning to show signs of picking up from the bottom. Almost all the growth is coming outside of the US which is the only place left to expand. Also some step up in a worldwide systems initiative to create common platforms. With fairly stable US results and inventory productivity still improving, it appears that cash flow is getting a slightly higher allocation towards non-US growth. 
  • Warnaco opened 43 new retail locations in the 2Q, significantly more than expected. With International sales +8% in the 2Q helping to offset domestic weakness and a long runway for international retail growth north of 20% over the next 3yrs, we wouldn’t be surprised if the company accelerates its growth plans further before year end.  
  • Macy’s indicated it is seeing benefits from cost savings and consolidation efforts materialize faster than originally excepted.  They are also shifting marketing dollars out of 2Q/3Q and into 4Q.  All of these moves amount to defense in an effort to make/exceed expectations.  Capex is still muted here at $400m vs. a normalized run rate of $800m. 


-Shoemaker Skins Footwear Inc (SKNN.OB) filed for Chapter 7 bankruptcy - Skins cited assets of less than $50,000 and liabilities of between $10 million and $50 million, according to court documents filed on Friday in federal bankruptcy court in Delaware. The New Jersey-based company makes shoes with a two-part structure consisting of an outer collapsible, interchangeable shell called its "skin," and an inner orthopedic support section called the "bone."  <reuters.com>

-Four Asian manufacturers filed an involuntary Chapter 7 petition against Ellen Tracy seeking to liquidate the company - The filing was made on Friday in Manhattan bankruptcy court. The four petitioners are: Shanghai K&J Apparel Co. Ltd., Shanghai, which owed $1.5 million; Chinamine Trading, Kowloon, Hong Kong, $676,000; Excellent Jade Ltd., Kwai Chung, New Territories, Hong Kong, $1.2 million, and Shanghai Mandarin Fashion Ltd., Shanghai, $432,000. Kenneth Rosen of Lowenstein Sandler in Rosalind, N.J., who represents the petitioners, said Ellen Tracy has 20 days to respond to the filing. He said the filing was necessary and called it an “alternative of last resort” because the debts were “substantially” overdue. Rosen also said he is seeking to have a bankruptcy trustee “investigate what happened to the Ellen Tracy license,” referring to the one in existence before RVC came into the picture. Fashionology Group, which is winding down its manufacturing business, last month sold the operational division of Ellen Tracy to RVC Enterprises. RVC was given the license for use of the Ellen Tracy brand for women’s sportswear in both the better and bridge categories. RVC is said to be in talks with several chains, including Macy’s, Dillard’s and Lord & Taylor. <wwd.com/retail-news>

-Kmart is launching a new apparel brand, Thre3 by the U.S. Polo Assoc., in time for the back-to-school selling season - The collection for women, men, girls and boys consists of jeans, sweaters, rugby shirts, polo shirts, woven shirts, fleece, zip pocket hoodies, French terry blazers and twill trousers. Prices range from $9.99 for children’s graphic T-shirts and women’s tops to $24.99 for women’s signature boot-cut jeans. Jordache Ltd. is responsible for designing, manufacturing and other creative aspects of Thre3. The U.S. Polo Assoc. is a division of Jordache. Four deliveries a year are planned. Thre3 apparel is preppy, designed with the elite sport’s classic iconography in mind. Thre3 seems to be taking a page from American Living, the collection sold at J.C. Penney designed by the Global Brand Concepts unit of Polo Ralph Lauren Inc., and Lauren’s Chaps, which is exclusive to Kohl’s. The Thre3 opening page on the Kmart Web site shows two neatly scrubbed men wearing khakis and jeans with polo shirts and two All-American women in twill pants with a polo and a woven blouse with ruffles. The Thre3 logo features an American flag and says, “Confident, iconic American style brought to you by the U.S. Polo Assoc.” <wwd.com/retail-news>

-UK Clothing and footwear sales in London fell back during July as the wet weather during the month drove sales of indoor items such as homewares and furniture - Total retail sales in London during the month grew 2.2% on a like-for-like basis, according to the British Retail Consortium (BRC)-KPMG London Retail Sales Monitor. The figure compares with a 5.8% like-for-like increase in sales during the same month a year ago. Footfall in July dropped below its year earlier level, hit by the wettest July on record and the end of Sale periods. In July, the capital benefitted from overseas visitors cashing in on the weakness of the pound against the euro. London outperformed the rest of the UK, which notched up a 1.8% increase in like-for-like sales during July, by the narrowest margin for nine months. <drapersonline.com>

-Japan has officially emerged from the recession in the second quarter - Japan’s gross domestic product increased 0.9% in April-June from the previous quarter, expanding at an annualized rate of 3.7% and growing for the first time in five quarters, the country’s Cabinet Office said. The figure came in slightly lower than economists’ expectations for 1% quarterly growth and 3.9% annualized growth. Last week, data from France and Germany showed that both of those countries have also emerged from recession, defined as two consecutive quarters of economic contraction.  <wwd.com/business-news>

-The waiting continues in the hard-hit contemporary retail market - While merchants wait for the next big trend that will spur consumers to get over their reluctance to buy, the finance executives in the back office struggle to pay bills and keep credit flowing. As a result, many of their vendors are waiting for payment as well. The result has been sharp sales declines for stores and an increasingly complex credit picture for their suppliers. And the pressure appears to be building on retailers in the sector, from Intermix to Barneys New York’s Co-op, Calypso to Scoop. Barneys New York had problems with factors not approving credit in the past year, in part because of a lack of financial information from its Dubai-based owner Istithmar, which ultimately gave the chain a $25 million cash infusion. Neiman Marcus Group, owned by private equity firms TPG and Warburg Pincus, has also been hurt by sagging sales, and factors tightened credit earlier this year. The concern surrounding Neiman seems to have eased a bit, so there’s little concern now about its contemporary Cusp concept.  <wwd.com/business-news>

-Walmart to Sell Kiss's First New Music in 11 Years in Exclusive Agreement - Wal-Mart Stores Inc., the world’s largest retailer, will offer a $12 CD set with rock band Kiss’s first new music in 11 years, and plans to expand into other merchandise licensed by the group. <bloomberg.com>

-H&M reports July sales figures - Comp trends getting sequentially better since -9% May, -5% June, and now -3% July.  Sales figures are accelerating as well since 0% May, 4% June, and 7% July. 





 JOEZ: Suhail Rizvi, Director, sold ~162,000shs ($114k) for R-2 Group Holdings as the Managing Member of the LLC

NILE: Susan Bell, Senior VP, sold 3,500shs ($189k) after acquiring the right to buy 3,500 options.

ANN: Christine Beauchamp, President, AnnTaylor Stores, sold 3,457shs ($41k) less than 5% of common holdings.