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RETAIL FIRST LOOK: SEVERAL EPS CALL OUTS

18 AUGUST 2009

  

TODAY’S CALL OUT

 

  • HD results appear to have fared better than Lowe’s, with domestic results trending better on both an absolute and sequential basis.  While transactions were up 0.3% and showed a sequential acceleration from 1Q, the average ticketed decelerated slightly and declined 9.3% in 2Q.  The overall US comp decline of -6.9% was measurably better than LOW’s and sequentially better than 1Q results, which were - 8.6%.  On the surface it appears that there are some slight share shifts underway.
  • Lowe’s disappointing same store sales decline of 9.5% for 2Q warrants a look below surface. Most notable was the performance of tickets over $500 (traditionally indicative of larger, more discretionary products) which declined 16% in the quarter. This decline had a disproportionate impact on the average transaction size in the quarter, which accounted for 8.6% of the total decline. Interestingly, same store sales for transactions under $50 were slightly positive. Overall customer count for the quarter was down 0.9%. Management stated that while demand appears to be weakening based on the results, the underlying trend has not shifted dramatically since 1Q. Management believes it underestimated the positive impact last year from the stimulus package, which made comparisons more difficult than anticipated. Regardless of the reason for weaker comps, the results clearly highlight the volatility that still exists in the consumer’s spending patterns. As a result of a more conservative outlook, LOW has decided to cut back its store growth plans until the environment stabilizes.
  • While not traditionally thought of as a Back to School category, CVS is looking to capitalize on healthcare services applicable to students heading back to the classroom. The company is using its MinuteClinic to introduce new services including acne care, sports and college physicals, as well as treatment for minor skin irritations common to students (i.e Lice). So far we have not seen any cross promotions between general merchandise and these services, although it may only be a matter of time before “one stop” shopping takes on an entirely new meaning.
  • Read the fine print… Usually Dick’s online promotional campaigns feature a special “after hours sale” so when we saw the weeklong 20% off BTS ad this morning, it raised a red flag.  But… if you read the fine print you will see that there is really little included in the sale but Danskin women’s apparel tops, Jansport backpacks, and New Balance running shoes.  Looking back to past year’s BTS ad campaigns, Dick’s actually had more items on sale.  We’re always careful not to read into these anecdotes too much, but it does suggest that Dick’s inventories could be tighter than some expect.  In Q2 08, DKS’s inventories grew at twice the rate of sales while in Q1 09 inventories were flat with 5% sales growth. 

MORNING NEWS 

 

-Survey says 47.8% of BTS shoppers were influenced by sales and coupons - According to a survey conducted by the National Retail Federation and BIGresearch released on Tuesday, of those shoppers who have already begun their back-to-school shopping, 47.8% were influenced by sales and coupons. 62.2% of American families who still have shopping left to do said they will head to a discount store. This should bode well for Wal-Mart Stores and Target, but with shoppers waiting longer to make purchases, those benefits might not be realized until September. As of Aug. 11, only 41.6% of American families had completed their back-to-school shopping, according to the survey. This shift into later back-to-school purchases took a toll on some of the retailers that reported second-quarter earnings last week like Macy's and J.C. Penney. Other than the discounters, when it comes to price plays, Aeropostale and Wet Seal are winners. <thestreet.com>

-Cautious consumer spending dampens online sales - Online retail sales in the second quarter were down 4.5% to $30.8 billion from Q2 last year, the Department of Commerce reports. By comparison, total retail sales fell 10.6%, driven by falling gas prices and plummeting car sales. <internetretailer.com>

-Japanese department stores' July sales fell 11.7%, registering their 17th consecutive month of decline - The Japan Department Stores Association said Tuesday that apparel sales of the country’s 272 stores fell 15.6% during the month. The continued weakness of the Japanese economy and a longer than usual rainy season bit into business, especially for swimwear and other summer items, the association said. Earlier this month, Fast Retailing Co. Ltd. attributed a 4.2% decline in July comps to the negative impact of the extended rainy season and an unusually cool summer. Department store sales of men’s wear lost 16.7%, while those of women’s wear shed 15.6%.  <wwd.com/business-news>

-Buy U.K. Supermarkets to Tap Food Price Inflation, Says ICAP Analysts  - ICAP Securities say investors should buy U.K. food retailers, including Tesco Plc and WM Morrison Supermarkets Plc, and sell food manufacturers, to take advantage of “high and rising” inflation starting next year.  <bloomberg.com/news>

-U.K. Inflation Unexpectedly Stays at 1.8% as Computer Game, DVD Costs Rise - The U.K. inflation rate unexpectedly held at 1.8 percent in July as the cost of computer games, DVDs and alcohol rose, a sign the economy is staving off deflation as the recession eases. <bloomberg.com/news>

-South Korean Department-Store Sales Rise for a Fifth Month on Luxury Goods - Sales at South Korea’s major department stores rose for a fifth consecutive month in July as consumers bought more luxury goods and accessories amid signs the economy is picking up.  <bloomberg.com/news>

-New Era Cap Co. Inc., a global headwear and apparel maker acquired privately held apparel manufacturer 5th & Ocean for -  A spokeswoman for New Era said management at Miami-based 5th & Ocean “will remain fully intact,” and that “no restructuring has been decided on yet.”  “The resources and knowledge that New Era brings assures that 5th & Ocean will continue to be the fashion leader in licensed apparel and will continue to provide superior speed-to-market,” said 5th & Ocean ceo Alex Leiter.  New Era, an 89-year-old vendor based in Buffalo, N.Y., said working with 5th & Ocean, a company also known for its Major League Baseball apparel, would enhance the launch of its “New Era Presents Tradition” collection, which supports historically black colleges and universities. Victoria’s Secret Pink and Dallas Cowboys merchandising also have merchandising relationships with 5th & Ocean.   <wwd.com/business-news>

-New president and CEO of Nike's Umbro decided - Jim Allaker, vice president and general manager of Nike U.K. and Ireland, has been promoted to president and chief executive officer of Nike’s Umbro brand. Marc Van Pappelendam, most recently vice president and general manager of Nike Eastern and Central Europe, will succeed Allaker in the U.K.-Ireland post. Allaker succeeds Matthew Cook, who has left the firm. Cook became president and ceo of Umbro in March 2008 following Nike’s acquisition of the U.K.-based soccer brand for $565 million. <wwd.com/business-news>

-Sears and Kmart utilize holidays savings Christmas Club card early - Sears and Kmart are encouraging consumers that there is “no time like the present” to start saving for the holidays with a combined push, launching today (Monday), that touts the retailers’ new Christmas Club card. The program lets consumers store funds on the retailers’ designated holiday card, to be used for Christmas spending. A minimum of five dollars is required to activate the card, and consumers may add additional money either online or in-store. Consumers have till Oct. 31 to activate the card, and Sears and Kmart will offer an additional three percent—to be applied towards the final card value—at the end of the promotion on Nov. 14. At the height of their popularity, Christmas Club cards allowed customers to withdraw and apply a specific amount towards a holiday savings account from their weekly earnings.  With holiday retail sales accounting for as much as 20 to 30 percent of a retailer’s annual revenue, Sears and Kmart are trying to combat a weak consumer-spending environment. The effort spans across TV, online and in-store, including point-of-purchase, and coaxes consumers to save. <brandweek.com>

-Hanes has launched a T-shirt design competition offering the chance to combine creativity with passion for a most worthy cause - Susan G. Komen for the Cure . Through Oct. 26, 2009, participants can enter Passionately Pink-inspired T-shirt designs with messages of hope, love and support for the chance to win a weekly drawing for a $100 Hanes gift card. In addition, a grand-prize winner will receive a $250 Hanes gift card and a screen-printed copy of the winning T-shirt design. Hanes will also make a $5,000 donation in the grand-prize winner's name to the winner's choice of Susan G. Komen for the Cure local Affiliate or Komen Global Headquarters. <phx.corporate-ir.net>

-Columbia Sportswear ventures into e-commerce with new site - Manufacturer Columbia Sportswear revamps its site to sell directly to consumers while supporting retailers with referrals and digital content. <internetretailer.com>

-Crocs and Australia Unlimited settle differences - The long-running legal dispute between shoemakers Crocs, Inc. and Kent, Wash.-based Australia Unlimited, Inc. is over. Crocs and Australia Unlimited, maker of the NothinZ lightweight ergonomic clog, agreed to settle all outstanding litigation between the parties by filing for dismissal of all claims and counterclaims.   <prweb.com/releases>

-Arcandor AG’s days are numbered - The bankrupt German department store, catalogue and travel group said Wednesday it will end its search for an anchor investor for the group on Saturday and instead focus on finding individual investors for its Karstadt department store and Primondo catalogue divisions. Arcandor filed for insolvency, the German equivalent of Chapter 11, on June 9, and proceedings are due to open in September. Despite increasing speculation, Arcandor consistently has stated its intention to keep the group intact. <wwd.com/business-news>

-Asics Corporation posted a 16.0% decrease in revenues for the quarter - Gross margins contracted about 140 basis points, SG&A expenses, which declined 3.2% for the quarter, expanded 460 basis points. Inventories at quarter-end were down roughly 2.5%. <sportsonesource.com/news>

-JEWELRY NAMES FOR SALE - Consor Intellectual Asset Management said it has been retained to find a buyer for the intellectual property assets of two now-defunct jewelry chains, Friedman’s Jewelers and Crescent Jewelers. In addition to the nameplates, other assets in the intellectual property portfolio includes Web site names and addresses and the registered trademark “Say It With Diamonds.”  <wwd.com/business-news>

-YMI EXPANDS APPAREL - Junior denim brand YMI will expand to activewear, tops and dresses for the holiday selling season under a license with HMS LLC. This marks the first licensing deal for Los Angeles-based YMI, which sells its jeans to retailers including J.C. Penney, Belk and Dillard’s. HMS is best known for producing clothing for Ed Hardy and Christian Audigier. YMI estimated that retail prices for its new offerings will range from $17 to $30 for tops, $25 to $60 for dresses and $25 to $75 for activewear such as jogging suits. <wwd.com/business-news>

-MADDEN DROPS EBAY SUIT - Steven Madden Ltd. has dropped a trademark lawsuit against eBay Inc. The firm brought the complaint against the online auction house in U.S. District Court in Manhattan on July 21, accusing the e-commerce giant of trademark infringement because unauthorized watches made by its former licensee, Vestal, were allegedly for sale on the site. However, court records show the footwear and accessories firm agreed to a voluntary dismissal of the suit on Aug. 5.  <wwd.com/business-news>

-This month’s Bangkok International Fashion Fair had many of the characteristics of a typical Thai street fair, save one: Sales - Orders were slow to nonexistent during the 24th edition of the trade event, reflecting the wait-and-see condition of the world economy and the evolving character of Southeast Asia’s largest garment-industry event. The show was open to buyers on Thursday and Friday and to the general public on Saturday and Sunday.  Attendance was up 40% over last year trade visitors from Asia, the U.S., Western Europe and the Middle East were more inclined toward networking than buying. As Thailand’s $18 billion textile and garment industry evolves, it’s being pulled in two directions. Government officials are keen for Thailand to shed its cheap, copycat-producing reputation and offer higher-quality goods. Yet buyers, especially in the current climate, are hunting for bargains to protect their margins.  “We cannot compete with [China] in terms of volume or price, nor do we want to,” said Piramol Charoenpao, deputy director general of Thailand’s Department of Export Promotion, organizer of the Fashion Fair. “We want to be known as a niche producer of quality goods — yarn to finished garments.”  But that’s not necessarily what buyers are after.  <wwd.com/business-news>

-Lands' End is increasing its product line beyond apparel - Lands' End Business Outfitters, a trusted partner for providing high quality branded apparel to companies of all sizes, is increasing its product line beyond branded apparel to now include a wide variety of promotional products. Recent research showed that nearly every company looking to build its brand uses promotional gifts in a variety of categories, specifically drinkware, bags and totes, and writing/desktop instruments. "Lands' End Business Outfitters is expanding our product offering to better serve our customers by providing a single, reliable source of branded products, from polo shirts to drinkware," said John Maher, vice president of Lands' End Business Outfitters. "We have selected items for our collection that are not only useful but also tasteful, professional  and, in many cases, sustainable." The new product line includes items such as drinkware, pens and desk accessories, screen print tee shirts, totes and travel gear and accessories, flashlights, and golf equipment. Each category has an eco-friendly product option for customers. The eco-friendly collection is made from post-consumer, previously used and post-manufacturing materials along with sustainable resources such as cotton and bamboo.  <prnewswire.com>

-The 2nd largest online specialty retailer for intimate apparel offers new website - Bare Necessities, the second largest Internet specialty retailer for intimate apparel, announced the launch of a new lingerie retail website, www.Lingerie.com.  Lingerie.com will offer risqué and sexy lingerie such as babydolls, bustiers, teddies, garters, costumes and more, from brands such as Leg Avenue, Shirley of Hollywood, Dreamgirl and Escante. Lingerie.com will also feature sexy plus size lingerie, and more provocative fabrications such as leather, lace, vinyl and sheer fabrics.  The Bare Necessities flagship site, BareNecessities.com, features the basic bras, lingerie, swimwear and underwear that women wear every day, and is second only to Victoria's Secret among specialty lingerie retailers in online sales volume, according to the 2009 Internet Retailer Top 500 Guide to Retail Websites. Lingerie.com meanwhile will offer a more provocative assortment of lingerie that will be completely different from the assortment offered on BareNecessities.com. Lingerie.com will be a completely separate website from BareNecessities.com, but will leverage the fulfillment, technology, merchandising and customer service infrastructure that Bare Necessities has built over the past 11 years.   <prweb.com/releases>

RETAIL FIRST LOOK: SEVERAL EPS CALL OUTS - lingere ad image

 

INSIDER TRADING ACTIVITY

UA: David McCreight, President, sold 25,351shs (~$606k) less than 20% of total common holdings.    

  • Note: Upon joining the company in July 2008, Mr. McCreight received a restricted stock award with a fair value of $4mm to vest over four installments; 50% after Y1; 25% after Y2; and 12.5% after Y3 & Y4. With the first $2mm of his award vesting as of August 1, 2009, Mr. McCreight sold roughly 25% of his award earlier this week. Also of note is that  he agreed to not sell, for one additional year, the shares that vest after the first year.

BOOT: Joe Schneider, President & CEO, purchased 5,437shs (~$54k) less than 3% of total common holdings.