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Takeaway: Department store SIGMAs are surprisingly good this week. But KSS should turn the other way. JWN is the worst we’ve seen in a decade.

COMPANY HIGHLIGHTS

Department Store Earnings

The big takeaway for this week is the comparative SIGMA trends for the department store group. As a reminder, the analysis triangulates sales, inventories and margins. The vertical axis is the spread between sales and inventories -- the higher on the scale, the better.  The horizontal axis is the y/y change in EBIT margin. In effect, you want to be either in the upper right hand quadrant, or headed there. The opposite holds true for the lower left.

The major takeaway for the group is that 3 of the 4 department stores are on a sequentially improving SIGMA trajectory. It's been years since we've seen this happen. Clearly, JCP is the big winner, and that's no surprise. But Macy's popped into Quadrant 1, which is notable, and even KSS showed some improvement on the margin. That said, it's worth noting that this is the 11th consecutive quarter where KSS has been unable to grow sales faster than inventory. Margins were positive this quarter due to SG&A cuts. That's finite. Gross Margins are in trouble.

JWN comes out as the biggest loser. It was already in Quadrant 3 - the worst place you can be -- for two quarters in a row. But this time not only did margins fall, but inventories were up 23%, and the company really did not have a good reason as to why. This is the worst inventory positioning for JWN in at least a decade. If there's a good reason to own JWN, we definitely don't see it. Numbers appear to be at risk.

Retail Callouts (8/15): JCP, M, KSS, JWN, TGT - chart1 8 15 

OTHER NEWS

TGT - Target CEO Brian Cornell Discusses Personalization

(http://www.wwd.com/retail-news/mass-off-price/target-unveils-canada-initiatives-7837533)

  • "Brian Cornell, Target Corp.’s new chief executive officer, on Wednesday held a town hall event at the retailer’s Minneapolis headquarters, his first meeting with company employees. Showing that he’s a leader for the future, Cornell and Target used Twitter as the platform of choice to communicate his message."
  • "'All of us need to be students of the consumer,' Cornell was quoted as saying on Target’s Twitter account. 'We need to be quick, we need to be decisive, we need to be agile.' He went on, 'We need to move forward with speed. To me, leadership is about surrounding yourself with a great team.'"

SVU - Potential Data Breach Revealed by Supervalu

(http://abcnews.go.com/Business/wireStory/data-breach-revealed-supervalu-24992944)

  • "The grocery chain Supervalu said Friday that it may have suffered a data breach at stores in as many as five states."
  • "Hackers accessed a network that processes store transactions. Account numbers, expiration dates, cardholders' names and other information may have been stolen, the company said."
  • "Grocery stores — as well as some stand-alone liquor shops — in Minnesota, Virginia, Illinois, Maryland and Missouri may have been affected between June 22 and July 17."
  • "The cards from which data may have been stolen were used at 180 Supervalu stores and liquor stores run under the Cub Foods, Farm Fresh, Hornbacher's, Shop 'n Save and Shoppers Food & Pharmacy names. Data may also have been stolen from 29 franchised Cub Foods stores and liquor stores."

WMT - Wal-Mart Sees Disney Orders Jump, Benefiting From Amazon Dispute

(http://www.bloomberg.com/news/2014-08-14/walmart-com-sees-disney-dvd-orders-jump-in-move-against-amazon.html)

  • "Wal-Mart Stores Inc.’s online division began offering discounted pre-orders on Walt Disney Co. DVDs this week, a move that capitalizes on a feud between Disney and Amazon.com Inc."
  • "Pre-orders of Disney movies such as “Captain America: The Winter Soldier” and “Maleficent” are available at Walmart.com for 40 percent off, Dan Toporek, a spokesman for the company, said in an e-mail. The deal helped boost “Captain America” orders by 90 percent, while sales of other Disney titles rose 40 percent, Wal-Mart said."

ZQK - Quiksilver unveils Boardshorts made from recycled fibres

(http://www.fibre2fashion.com/news/apparel-sustainibility-news/newsdetails.aspx?news_id=166898)

  • "Quiksilver has launched its newly designed AG47 collection of Boardshorts, made from recycled fibres. Each Boardshort is made from approximately 11 plastic bottles. These fibres brand named Repreve are recycled from materials like plastic bottles, etc by Unifi, a leader in recycling fibre."

DG - Dollar General adds Paula Price to BoD’s audit committee

(http://www.fibre2fashion.com/news/garment-company-news/newsdetails.aspx?news_id=166889)

  • "Dollar General Corporation announced the appointment of Paula A. Price, Senior Lecturer at Harvard Business School, to its board of directors effective August 26, 2014."

APP - American Apparel adds Laura Lee to BoD

(http://www.fibre2fashion.com/news/garment-company-news/newsdetails.aspx?news_id=166892)

  • "American Apparel, Inc. announced the appointment of Laura A. Lee to the company's board of directors."
  • "Laura brings a deep understanding of the internet space and digital launch initiatives, combined with a strong background in major brand building and key partnership development, to the American Apparel board," said Colleen Brown, nominating and governance board chair.

WAG - Walgreens set to change operational structure

(http://www.retailingtoday.com/article/walgreens-set-change-operational-structure)

  • "Following Walgreens' announcement last week about taking the next step in acquiring Alliance Boots, Alex Gourlay, EVP Walgreens Boots Alliance and president of Walgreens, announced changes in the company's operational organization structure in a letter to Walgreens employees."
  • "Mark Wagner, currently president of community management and store operations, will take on a new role as president of business operations."
  • "Brad Fluegel, currently SVP and chief strategy officer, will become SVP chief strategy and business development officer."
  • "Richard Ashworth will be returning from Alliance Boots in a new role as president of retail and pharmacy operations."

SHOO - Steve Madden Acquires Dolce Vita for $60.3M

(http://www.wwd.com/business-news/mergers-acquisitions/steve-madden-acquires-dolce-vita-for-603m-7839188?module=hp-topstories)

  • "Steve Madden LTD. is on an acquisition spree, and planning on more deals ahead."
  • "The footwear and accessories firm’s newest baby is Dolce Vita Holdings Inc., which it acquired for $60.3 million in cash, subject to a working capital adjustment and an earn-out provision based on future financial performance."