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SEPTEMBER 14, 2009


How can we not comment on the insider selling at KSS on Thursday and Friday.  Five insiders sold a total of 814k shares for about $45mm, marking the first insider open market sale at KSS since April 2007. If there’s any good news, it’s that in 2007 (with the stock at about $75) management sold about $215mm, and the previous cluster in 2006 was for $126mm.  But with 70% of the 20 analysts sporting Buy ratings, the remainder at ‘Hold’ and absolutely no one at ‘Sell,’ this is a major call out. So is the fact that price targets are only 5% above current value and short interest has been declining over the past three months and now sits below 6%. But when I look at our SIGMA, which shows that KSS is starting to anniversary positive Gross Margin swings over the past five quarters, SG&A compares should begin to get tougher, and capex as % of sales is at trough, it makes the consensus view of 60bp margin expansion next year and 13% EPS growth tougher to bank on. Simply put, this name is the poster child for the kind of consumer name where we need to bet to a meaningful recovery in consumer spending in order to make it work.  

1. Red arrows represent insider sells, while green represent buys.


2. Sell-side sentiment remains overwhelmingly positive 


3. Short interest has been heading lower 


4. SIGMA setup relies upon organic comp and SG&A leverage. 



Some Notable Call Outs

  • Following in the footsteps of GameStop and Best Buy, Toys R Us announced that is introducing a used video game exchange program. Customers can trade in used video games in return for a credit to be used towards any future purchase in store or online. It is unclear if Toys R Us is also selling the used games. Toys R Us offers a gift card in exchange for the trade-in whereas GameStop offers cash. Early experience with the new Toys R Us program suggest they are offering slightly higher trade- in values vs. GameStop.
  • When asked about the sustainability of the large amount of goods in the market for sale to off price retailers, Burlington Coat Factory’s CEO suggested obtaining inventory has never been a problem. His comments mimic the unanimous view from all off-pricers that there is always inventory available, no matter what the economic backdrop might be at any given time.
  • In an effort to differentiate itself from Target and Wal*Mart, Kmart is testing a program in Michigan that targets unemployed consumers. The program called Smart Assist offers a 20% discount towards purchases of private brands. Aside from driving incremental traffic, the program is also generating positive buzz in the media as the company competes head to head with WMT and TGT.


-Most footwear vendors say the recovery will be long, sluggish and have lasting effects on the industry - “This has been a wakeup call to the fundamental business models that had been in play,” said Angel Martinez, president and CEO of Deckers Outdoor Corp. Martinez said that for years the footwear market was unnaturally active, fueled by credit-card spending and money from home equity loans. As a result, the market grew at an artificial, unsustainable rate. Jerry Turner, chairman and CEO American Sporting Goods, said the slow recovery would be the new reality for manufacturers and retailers of all stripes. “There was so much false spending going on out there, with consumers using credit cards and borrowing on their homes, that there is no recovery from that. It was false. There’s no going back to that,” he said. “So there will be less business out there ... and it will take strong discipline on the part of anyone in business to grow profitably.” Wolverine Footwear Group President Ted Gedra said the company’s lean business practices have helped lessen the impact of the sour economy. Still, he said, the company had been forced to prioritize its investment spending. For example, in the Wolverine brand business, spending has been focused on lifestyle positioning, while the company’s core workboot business is centered on new technologies such as its Contour Welt construction. The “new normal,” as some have termed the current economy, has prompted Glendale, Wis.-based Weyco Group’s Florsheim brand to play to its strengths, shifting inventory deeper for core shoes and away from specialty items. “We used to be a little more aggressive with seasonal shoes,” said Tom Florsheim, Weyco chairman and CEO. “Now we’re about stocking inventory on our core shoes. [But] we’re really built for tough times. We run a very lean company.” K-Swiss expects another lasting effect of the recession could be a prolonged consumer focus on value, whether that means a lower price or a higher perceived merit. “That means you have to run your business very lean and tight forever,” said K-Swiss CEO Steven Nichols. “The recession could end, but I don’t think times are going to be spectacular.” To energize the value component of the company’s products, Nichols said K-Swiss was making significant investments in research and development and new technologies. “We’re probably putting more money into design and development than we ever have,” he said. “We’re doing things regardless of where the business is now.” <wwd.com/footwear-news>

-Unfortunately, Adidas won’t be producing the pink-and-yellow Barricade V shoe inscribed with the word “believe,” worn by 17-year-old tennis sensation Melanie Oudin during her phenomenal U.S. Open run. But there is a workaround for tennis fans desperate to pay homage: The company invites them to make their own via the Mi Adidas Website. “We will not be doing any mass production, [but] fans can go onto Miadidas.com — which is exactly the same way [Oudin] did it — and customize their shoes with ‘believe’ or whatever else inspires them,” said a company spokeswoman. Despite her loss to Denmark’s Caroline Wozniacki on Sept. 9, Oudin certainly secured a spot in tennis history last week and will likely become a familiar face for the athletic brand. “She will probably be a lot more prominent in terms of our tennis athletes,” said the Adidas rep.  <wwd.com/footwear-news>

-Footwear News survey says kids footwear sales are up - Channel checking 6 private family footwear stores yielded the results that children's footwear is selling.  <wwd.com/footwear-news>

-Ralph Lauren’s Rugby tosses a second ball into the mobile commerce scrum - Right now retail mobile apps are battling in a rugby-like scrum, fighting for the attention and subsequent downloads that move them high on the list of popular apps in an app store. Ralph Lauren’s Rugby brand today entered the fray with a mobile app targeting young adult fashion consumers who want to personalize what they buy and how they buy it. The new iPhone app expands Ralph Lauren’s already considerable presence in m-commerce. The retailer operates two transactional mobile sites, m.RalphLauren.com and Rugby.com/mobile, and both Polo and Rugby use text messaging in their marketing programs.  <internetretailer.com>

-Traffic fails to make the grade at computer and electronics e-retailers - Despite school days lurking right around the corner, consumers weren’t looking online for laptops or other gadgets to help them in school in July, at least not as much as last year. Most of the top 10 e-retailers in terms of traffic that sell computers and consumer electronics posted drops in unique visitors, Nielsen Online says. Gamestop was the traffic winner with a 25% rise compared to last year. On the other end of the spectrum, Circuit City posted a 73% decline. The top multi-category computers and electronics online shopping destinations in July with unique visitors in millions this year and last and growth from prior year, according to Nielsen Online, were: Best Buy, 14.36, 13.90, 3%, eBay Electronics, 4.89, 7.72, -33%, Gamestop.com, 4.06, 3.24, 25%, OSTG, 3.70, 4.10, -10%, Newegg.com, 3.24, 3.97, -18%, Circuit City, 3.21, 11.76, -73%, TigerDirect.com, 3.11, 3.56, -13%, eBay Computers, 2.09, 4.28, -51%, Sony Electronics, 1.54, 1.70, -10%, Samsung, 1.38, 1.62, -15%. <internetretailer.com>

-Yahoo! Inc. is selling a stake in Alibaba.com Ltd. - The operator of China’s biggest trading Web site, for as much as HK$1.17 billion ($151 million), according to the terms of the sale obtained by Bloomberg News. UBS AG, the sole bookrunner, is placing 57.5 million shares at an indicated price range of HK$19.80 to HK$20.30 apiece, the terms showed. That’s 6.4 percent to 4 percent less than Alibaba’s closing price in Hong Kong today and the number of shares is equivalent to a 1.1 percent stake. Sunnyvale, California-based Yahoo, owner of the second- biggest U.S. Internet search engine, is selling Alibaba shares after the Chinese company’s stock almost quadrupled in Hong Kong trading this year. Alibaba rose 3.7 percent to HK$21.15 in Hong Kong today, while the city’s benchmark Hang Seng Index fell 1.1 percent.  <bloomberg.com>

-John Lewis has relaunched its online fashion offer and is set to drive sales by 30% this year - The site, at www.johnlewis.com/fashion, gives shoppers access to over 200 fashion and beauty brands and includes updated search and navigation technology. The department store plans to add £70m to John Lewis’ online fashion sales by 2011. Fashion sales represent about 6% of johnlewis.com’s total sales and the department store is set to grow that by 30% this year. It will launch more than 100 new brands online across all categories. Brands available online will include Lulu Guinness, Steve Madden, Belstaff, Hudson Jeans, Elie Tahari, Mulberry, Ralph Lauren, Orla Kiely, Paul & Joe Sister, Nicole Farhi and Paul Costelloe. John Lewis Direct managing director Robin Terrell said: “Fashion online is one of the biggest business opportunities for John Lewis over the next three years and there will be a significant step change in our customers’ shopping experience online. <drapersonline.com>

-Retail sales in London in August were at their lowest in four years, according to the London Retail Sales Monitor - Sales for the four weeks to August 29 were down 5.9% on last year, the first time they have fallen this year, following a strong seven months. It is also the biggest like-for-like drop since August 2005. Overall UK retail sales dropped 0.1%, marking the first time this year that London has performed worse than the UK as a whole. Clothing and footwear performed worse than food. The fall in London was due in part to better August weather prompting people to spend their time outdoors, as well as visitors from the Middle East returning home earlier this year, as Ramadan began earlier. <drapersonline.com>

-Gap making more of a presence in UK with a pop-up shop for 19 days - Gap opened a 40th anniversary pop-up store in Kingley Count, off London’s Regent Street. The two floor store is one of a quartet of pop-ups marking the event. The first opened last month in Los Angeles last month followed by London, New York and Paris. The London store has two floors, will trade for 19 days and 69 hours (the original Gap store opened in 1969) and on opening day 69 pairs of jeans were on offer for, yes, £19.69. <retail-week.com>

-Glassware and gifts brand Designs by Lolita is unveiling a home accessories collection - by Avanti Linens this fall at Macy's stores. The line includes beach towels ($24.99) and other accessories for bath, kitchen, bed, bar and beach. The beach towels, which feature a fiber-reactive print on the front and has a drink recipe on the back, will first hit in November at Macy's stores in South Florida. A nationwide rollout will follow in the spring. More product release dates and retail partners will be announced in October. <licensemag.com>

-Indian retailers are upbeat once again as consumption picks up indicating more money coming in to the hands of customers - Researchers say that private consumption continues to grow at double digit - Rs18 trillion projected for 2010 and that modern retail is expected to further spur consumption and catalyze speedier economic growth while technology brings in efficiencies in every sphere of retail and contribution. These will be the broad agenda at India’s mega retail convention, India Retail Forum (IRF) ’09, scheduled on 16th & 17th September at the Renaissance, Mumbai. <indiaretailing.com>



  • Kevin Mansell, Chairman, President & CEO, sold 138,000shs ($7.8mm) nearly 50% of total common holdings, but closer to 10% of total holdings including options.
  • John Herma, Director, sold 100,000shs ($5.7mm) less than 2% of total common holdings.
  • Bill Kellogg, Director, sold 300,000shs ($16.7mm) less than 4% of total common holdings.
  • Frank Sica, Director, sold 1,000shs (55k) less than 5% of total common holdings.
  • Peter Sommerhauser, Director, sold 35,000shs (~$2M) nearly 30% of total common holdings.
  • (Thursday 9/10) Lawrence Montgomery, Director, sold 240,000shs ($13.1mm) nearly 35% of total common holdings.

DKS: Ed Stack, Chairman & CEO, sold 50,000shs ($1.1mm) after exercising the right to buy 50,000 shares less than 1% of total common holdings.

FOSL: Ken Anderson, Director, sold 6,750shs ($190k) after exercising the right to buy 6,750 shares roughly 50% of total common holdings.

GES: Michael Relich, SVP & CIO, sold 6,697shs ($240k) nearly 25% of total common holdings.

VLCM: Richard Woolcott, Chairman & CEO, sold 20,000shs ($300k) less than 1% pursuant to a 10b5-1 plan.