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19 AUGUST 2009


  • Target stands out as one the few retailers willing to comment on early back to school sales and the results are encouraging (yes, we know it’s early in the season). Based on the small sample set of only two weeks worth of data, Target commented that back to school and back to college sales are tracking ahead of plan and the overall run-rate for the month is tracking ahead of 2Q results. There are still 11 weeks to go in the quarter, but the fact that management was willing to comment suggests there is a higher level of confidence emanating from the big red bullseye. Of course, substantial earnings upside following an epic battle with Ackman also helps.
  • Home Depot’s CEO did not shy away from a point blank question asking when same-store sales would actually turn positive. In a sign that stability and visibility are building, the CEO responded with, “I would say it will be some time in 2010 and probably second quarter or back half of 2010.” With domestic same store sales down 6.9% in 2Q, there is clearly work to do before the topline turns positive. Interestingly, the CFO believes expense leverage on the upside will be disproportionate to the downside (which currently tracks at about 10bps of SG&A deleverage per 1 pt of comp decline).
  • For the second time this year, TJX increased its store growth plans for the year. The company now plans to open 90 stores in 2009, up from a recently revised range of 80-85, and an original plan of 65. Store growth next year is now expected to be even greater than the 4% square footage growth planned for ’09. TJX stands out as one of the few companies taking advantage of real estate dislocation, both domestically and in Europe.
  • With an essentially unchanged environment for the luxury consumer in 2Q, SKS was able to generate a better than expected gross margin result despite a still-weak topline. When pressed on the its conference call, management noted that they are trying to ease off of promotions as supply/demand has become better balanced. The company is promoting less frequently and is now pulling some items out of promotion all together. This all sounds positive, but we caution that it will take the consumer quite a bit of time before she feels compelled to purchase at full price. To some extent, lower initial pricing and mix shifts toward lower price points may help offset promotional cadence but it is still early to make a call on these merchandising changes.
  • In another sign that visibility may be improving slightly, Perry Ellis management reinstated its policy of providing fiscal year earnings guidance with the reporting of its 2Q results. The company cited better visibility on the Fall season coupled with cost controls as the key driver behind the EPS outlook, which calls for $0.70-$0.85 per share. Consensus is currently $0.75.
  • Our latest data point from the running shoe market suggests that the demand for technical shoes is improving. Fleet Feet, an operator of 90 specialty running stores nationwide with brands like Brooks, Asics, Saucony etc., reported 1H comps up 8.4% with June comps up 11.1%. The June result was best month so far this year. Not only is this an indication of accelerating demand, but this also lends support to consumers’ desire to seek “value” (but not necessarily price) given the highly trained staff that typically works at a highly specialized retail store.


-Retail sales in central London in July were 2.2% higher, on a like-for-like basis, than a year ago, when sales were up 5.8%. Retail footfall in July fell back below its year-earlier level, hit by the wettest July on record and many clearance sales coming to an end. Sterling's weakness against the euro continued to attract overseas visitors, especially those from western European countries. Middle Eastern visitors were more numerous, coming before Ramadan. Food, clothing, footwear and outdoor living slowed as the wet weather turned minds to indoor items such as homewares and furniture. <brc.org.uk>

-New USDA world cotton consumption report sees slight uptick - The latest US Department of Agriculture (USDA) forecast for 2009/10 projects that world cotton consumption will increase by 2% increase from 2008/09 but the growth rate is well below the 2004-2007 average.  The modest rebound is forecast as the world economy begins a slow recovery from the most severe global economic conditions in decades. Meanwhile, cotton consumption among the major spinners has become more concentrated. The top four cotton-spinning countries are forecast to account for nearly 73% of global consumption in 2009/10, up from the 2004-2007 season average of 69%. In addition, the top three spinner’s shares continue to increase. China and India have each increased their share of world cotton consumption recently by nearly 2% above their respective 2004-2007 averages. Pakistan has seen its share rise also, while Turkey’s share of global consumption has declined. <fashionnetasia.com>

-Sri Lanka to revive cotton production - Sri Lanka's Member of Parliament and senior Presidential Advisor Mahinda Rajapakse said the government aims to revive cotton production in the country on levels that were achieved in the past. He said nearly 50% of the cotton demand of the country were met by the production of the Hambantota province which had alone met the need of the handloom sector back in the 1970’s. He said initially cotton bales were imported from India, which later led to importing yarn and finally fabrics which sounded the death-knell of the cotton sector in the country, but the government would do everything to make Sri Lanka sufficient in cotton production.   <fashionnetasia.com>

-Pakistan's Ministry of Textiles passes new policy to revive textile exports - Pakistan's Ministry of Textiles has announced to launch an export development fund amounted Rs 40 billion under the new textile policy for the first time in the history of the country. To revive textile exports, the new National Export Policy (NEP) has targeted to increase revenue from exports to US $25 billion within the next five years and as a first step has reduced the mark-up to 5%. Under the NEP, the government is planning to provide zero rating to exports which could help the exporters price their products competitively and is also offering relief to manufacturer-exporters who are unable to clear their debts. <fashionnetasia.com>

-Top Online Apparel and Accessories Retailers - According to figures from Nielsen, eBay was the leading online retailer in the apparel and accessories category during July, with nearly 2.6 million purchases — representing 27 percent of all apparel and accessories purchases online that month. The category’s buyers spent an average of $81.83 each, and made 1.54 purchases each. EBay consistently ranks among the top online retailers in terms of traffic, according to Nielsen. Other top retailers during July included Victoria’s Secret, Lands’ End, J.C. Penney Co. Inc., plus-sized merchant Woman Within and Old Navy. The majority of the Top 10 retailers are either midpriced or discount shopping destinations for money-conscious consumers. <wwd.com/business-news>


-The collapse in retail spending is hammering stores in Eastern Europe - The region's severe recession sent retail sales down an outsized 29% in Latvia in June compared to a year ago, 20% in Lithuania, 17.8% in Romania, and 10.5% in Bulgaria. For the entire 27-member EU, retail was up 0.1%, a figure that underlines the disproportionate impact the recession is having on the European Union's newer, eastern members. Some analysts think retail statistics look so much worse than in the West in part because some hard-pressed retailers are moving sales off the books to avoid taxes — meaning those sales don't show up in the totals. In many places, stores are shuttered, and many windows are plastered with political posters and signs offering fire-sale discounts of up to 90%. Eastern Europe is getting a cold shower after years of heady growth fueled by cheap bank loans and the euphoria of EU membership in 2004. Romania, Bulgaria, and Hungary and the Baltics are struggling, while Poland and the Czech Republic are faring relatively better.  <google.com/hostednews>

-As Shoppers trim expenses, coupon use is robust at department stores and mass market retailers, as well as at grocery stores - The economic crisis has eroded the stigma linked to coupon-clipping, with shoppers seeking any financial advantage they can get, according to a survey by marketing firm ICOM Information & Communications. A total of 86.5% confirmed they utilized coupons in the previous month at grocery stores, 41.3% tapped into coupons for purchases at department stores or mass merchants; 46.5% at restaurants, and 34.9% used them to shop for personal or health care products at drugstores. Coupons enable typical households to save 25% a year without cutting purchases, and almost all retailers are “increasing the number of coupons they issue,” Storey said. A separate study for the National Retail Federation found 43.4% of shoppers said coupons influenced them to shop at a particular store, and coupons or sales influenced 47.8% of back-to-school purchases.  <wwd.com/retail-news>

-Guess is sued by a Manhattan property owner for failure to comply with agreement - A Manhattan property owner that ended a lease with Steven Madden Ltd.’s retail unit to make way for a Guess store sued Guess Retail Inc. after Guess allegedly backed out of the new agreement. According to a lawsuit filed in U.S. District Court in Manhattan on Aug. 14, 720 Lex Acquisition LLC agreed in June 2008 to rent its entire building at 720 Lexington Avenue to Guess. The 15-year lease called for Guess to pay $30 million in rent over its term. As part of the preparation for its new tenant, the property owner said it terminated a lease with the building’s previous occupant, Steve Madden Retail Inc. <wwd.com/business-news>

-Escada's US arm has followed its German parent company in filing for Chapter 11 - The Munich-based luxury fashion house filed for bankruptcy on Friday and was followed this week by Escada USA. Escada told WWD that the US arm had followed suit in order to stabilise Escada’s important American business, which accounted for approximately 20% of the group’s sales in 2008. An Escada spokesperson said that the move was “a crucial first step in the overall restructuring of the group.” The group saw its latest restructuring proposal rejected by bondholders last week and received interest from a potential buyer, Munich lawyer Nickolaus Becker, yesterday. <drapersonline.com>

-JD Sports to acquire online sports retailer Kitbag - According to reports, JD wants to buy the business from home shopping group Findel, which has been trying to offload its non-core assets. Kitbag is also understood to have courted interest from private equity groups. Kitbag employs around 200 staff and has a turnover of around £30m. JD has made several acquisitions this year including French retailer Chausport and rugby brands Kooga and Canterbury Europe.  <drapersonline.com>

-Easton-Bell Sports, Inc. reported sales declined 15.2% Q2 09 (down 12.6% on a constant currency basis) - Team Sports net sales decreased 23.8% for the second quarter due to the decline in sales of baseball and softball bats, football equipment and the negative impact that the currency fluctuations had on sales of hockey equipment in Canada and Europe. Action Sports net sales decreased 2.3% due to lower sales of OEM cycling components and powersports helmets, partially offset by increased sales of snow sports helmets and cycling apparel. Benefited during the quarter from ongoing focus on cash management, including lowering inventories, which helped reduce net debt. <sportsonesource.com>

-Retail market in the Orlando area appears to be showing signs of life - The retail market in the Orlando area appears to be showing signs of life in the first half of this year, according to the International Council of Shopping Centers’ bi-annual Florida Retail report. Despite seeing a 3% increase in the unemployment rate since the end of 2008, some Orlando submarkets saw increases in rental rates through the first six months of the year, said the report, released Aug. 17 during the ICSC’s convention at the Gaylord Palms in Orlando. But many of those same submarkets also saw huge drops in occupancy rates, the report said. The Orlando market saw an overall 2% drop in retail occupancy, from 91.6% at year-end 2008 to 89.7% in midyear 2009. Meanwhile, rental rates saw a 1.1% decline <bizjournals.com>

-Intimonth LLC today kicks off its contribution to the nation's stimulus package by launching 1000000freepanties.com - Without the need to wait for a tax return or a stimulus check, 1000000freepanties.com aims to give away one million free panties to anybody that requests a pair. Intimonth LLC believes that a new pair of sexy panties will help people forget the ongoing economic, political and personal problems facing them today. So let people forget their troubles and work on their own relationships with a new pair of seductive panties. Imagine how that will stimulate the economy. These panties, which normally retail for $40, are made from the finest satin, silk and other stimulating materials in styles including Thongs, G-Strings, French Knickers, Bikinis and  Tangas. Visitors to 1000000freepanties.com will also have the opportunity to explore and join monthlylingerie.com. Monthlylingerie.com is the largest lingerie club on the Internet and stimulates its members every month with European designed lingerie delivered directly to their home. <prnewswire.com>

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

08/18/2009 11:04 AM


Re-shorting AutoZone on a green day. We don't like current clunker trends or the sell side upgrade that gives us this great re-entry point. KM


RL: Ralph Lauren, CEO, sold 127,600shs (~$8.2mm) less than 1% of total holdings pursuant to 10b5-1 plan.

CAB: Mark Reuben, Director, purchased 200,000shs (~$3mm) on a base of over 500,000shs owned.


  • Tracy Gardner, President – Retail & Direct, sold 80,000shs (~$2.4mm) roughly 50% of total common holdings upon exercising the right to buy 90,000 pursuant to 10b5-1 plan.
  • Libby Wadle, EVP Factory & Madewell, sold 16,573shs (~$507k) less than 30% of total common holdings pursuant to 10b5-1 plan.

JOEZ: Joe Dahan, Creative Director, sold 600,000shs ($420k) less than 5% of total common holdings.