RETAIL FIRST LOOK: SEPTEMBER 18, 2009

RETAIL FIRST LOOK: SEPTEMBER 18, 2009

SEPTEMBER 18, 2009

TODAY’S CALL OUTS

  • A conversation with Dick’s Sporting Goods management suggested that Under Armour’s launch of running shoes in their stores was inline with plans and overall DKS was pleased with the product. This is particularly noteworthy because the general perception across the marketplace and the Street is that the launch did not live up to expectations. Clearly there were some disappointments. However, with DKS being one of UA’s largest partners we think the vote of confidence bodes well for future product proliferation.
  • With the back to school chatter officially dwindling, we can’t ignore the trend of consumers buying closer to need. Footwear sales posted a substantial increase last week, increasing by 17%. The measurable improvement  in sales takes the trailing 3 week performance to only down 1.8%, the best performance we have seen for the category since late April. ASP’s while still positive at 1.2%, decelerated from 4.9% in the prior week. This was the first deceleration in ASP growth in seven weeks. While most brands posted a strong week of growth, Reebok, Adidas, and New Balance all showed sales declines.  Converse and Under Armour were top performers for the week, with increases of 59% and 53% respectively.
  • A visit to a Dick’s Sporting Goods store revealed prime product placement for K-Swiss’ recently launched running shoes. The $75 “Tubes Run 100” were prominently positioned with a brand specific display on an end-cap located near the center-core of the footwear department. While this shoe represents the entry level product in KSWS’ recently launched performance running line, we’re encouraged to see the “classics” image being complimented by the new “performance” offering. The running line currently ranges for $75 to $125 at retail.
  • At an investor conference yesterday, Kenneth Cole management expressed the company is embracing the trade-down environment from luxury to lower priced shoes.  Admittedly, the brand lost on the way up when the consumer migrated above KCP’s price range. Now, with luck and a changed macro backdrop the company believes they are poised to take advantage of the consumer trade down.  I guess if you wait long enough, eventually the market dynamics will revert back into favor.
  • Timberland increased the discounts on its own e-commerce site for the beginning of September from 30% last year to 40% this year.  In looking at NPD data, sales across all channels for the brand have been deteriorating at a rapid pace. Over the last three months June sales declined by 11.7%, July by 13.5%, and August by 20%. Interestingly as sales momentum has deteriorated, ASPs have increased from flat in June to up 14% in August.  While increased ASP’s may suggest an attempt to preserve margins, the heavy discounting is likely an attempt to clear inventory as we near the key boot selling season. With the departure of two high level executives (CFO and co-President) recently, the direction of the brand and strategy still appears to be unclear.
  • As Pier 1 continues its turnaround efforts, the company has successfully negotiated rent reductions on 30% of its store base. These reductions which will reduce rental expense by $37 million with 75% of the cash savings expected to flow through over the next 3 years. PIR remains one of the most aggressive retailers on the rental reduction effort. On the sales front, the company indicated that same store sales have turned positive in September.

MORNING NEWS 

-Positive trends are beginning to emerge in specialty retail mergers and acquisitions activity - A report by investment banking firm Tully & Holland cites a rebound in retail valuations and a more than 50% rise in the S&P Retail Index since March as key elements in the shift. A dozen transactions were announced in the second quarter of this year, double the volume during the first quarter and at about the same level as the second quarter last year, the study said. About two-thirds of the activity this year has involved distressed sales, and most acquirers were strategic buyers. Transactions in the second quarter include: New Deal buying Against All Odds; Levi Strauss & Co. acquiring Levi’s Docker’s outlets; Golden Gate Capital getting J. Jill Group Inc.; Jimmy Khezrie purchasing Man Alive; Syms Inc. buying Filene’s Basement and Dress Barn acquiring Tween Brands Inc. Third-quarter activity includes: Amazon.com purchasing Zappos.com; a consortium led by Diamond Capital buying 16-door general merchandise retailer Baskins Department Stores; Golden Gate Capital acquiring Eddie Bauer Holdings Inc.; Tresalia Capital’s taking a minority stake in Tory Burch and Advent International getting Charlotte Russe Holding Inc. The study cited two other positive signs in August: the initial public offering filing by Dollar General Corp., owned by private equity firm KKR, and the receipt of $11 million in private placement funding by online apparel retailer MyShape. Tully & Holland noted valuations for three recent transactions were within historical retail valuation norms: Tween Brands Inc. sold at 5.6 times earnings before interest, taxes, depreciation and amortization; Eddie Bauer at 5.9 times EBITDA and Charlotte Russe at 6.6 times EBITDA. <wwd.com/business-news>

-Department stores are continuing to struggle as Japan inches its way out of a recession - Department store sales in August dropped 8.8%. This is the 18th straight month of decline for the retailers, which have been suffering for about a decade in the wake of increased competition from shopping malls and specialty stores. Apparel sales at Japan's 271 department stores fell 11.3% during the month.  Men’s wear sales shed 11.7%, while women’s wear sales declined 11.4% against a year ago.  The country's harsh economic condition, coupled with an unusually cool summer bit into business,  the association said. <wwd.com/business-news>

-K-Swiss Racing for Success in the Long Run - While Under Armour received overwhelming attention from the media and Wall Street for its running shoe “launch” this past year, another iconic athletic brand is making inroads into the running shoe market while flying under the screen. The primary difference in the way the two brands entered the running has to do with the slow, measured approach taken by K-Swiss Chief Executive Steven Nichols as he works to build on a performance platform for future growth. <sportsonesource.com>

-Hanesbrands Inc. said Thursday that it will exit the yarn business by selling three of its plants and closing a fourth - The Winston-Salem, N.C.-based basics maker said it will stop production immediately at its yarn facility in Sanford, N.C., which has 150 employees. In addition, by yearend Hanesbrands will close two warehouses in North Carolina that have a total of 25 employees. Gastonia, N.C.-based yarn manufacturer Parkdale will take over Hanesbrands’ yarn plants in Rabun Gap, Ga., Mountain City, Tenn., and Galax, Va. Those facilities have a combined head count of 780 employees, the company said. Hanesbrands declined to disclose the sale price. The firm said it will use Parkdale as a yarn supplier after the deal is completed. “Producing our own yarn, when more than adequate large-scale supplies exist, serves no strategic purpose,” said Richard Noll, Hanesbrands chairman and chief executive officer. “Outsourcing yarn is a logical evolutionary step to drive value and improve the use of our assets.” The company said it expects to realize $100 million in balance sheet benefits within six months of the sale due to working capital improvement and reductions in raw material requirements and inventory. It anticipates the sale to close in the fourth quarter of its fiscal 2009. <wwd.com/business-news>

-Diadora's sale of the founder of footwear firm Geox SpA has been put on hold until next month by an Italian bankruptcy court - As reported, the Italian-based Diadora SpA in June agreed to to sell its business to Geox SpA's founder and chairman Mario Moretti Polegato through his family's investment arm.  <sportsonesource.com>

-Adidas and Puma are gearing up for what they're calling “a historic handshake" in support of a non-violence initiative - On Monday, dubbed Peace One Day 2009, employees from the two German firms will play football together and then watch “The Day After Peace,” a film by Peace One Day's initiator, Jeremy Gilly. This will be the first time the two Herzogenaurach-based companies have been involved in a joint activity since their founders Rudolf and Adi Dassler left their shared sport shoe firm and established Adidas and Puma 60 years ago. The goal, both companies say, is to raise awareness for Peace One Day, a project initiated by Gilly in 2001 to establish an annual day of ceasefire and non-violence. Adidas and Puma said they would also bring the message of peaceful cohabitation to Munich and Stuttgart's football stadiums on Saturday during the halftime of the German premier league games being played there. As Adidas chief executive Herbert Hainer proclaimed, “We firmly believe that sport can bring the world together.”  <wwd.com/footwear-news>

-Labelux Group, a Vienna-based luxury goods holding company, has acquired a stake in high-end Italian accessories maker Zagliani - Though the terms of the deal were not disclosed, Berndt Hauptkorn, chief executive officer of Labelux, said the investment is in line with the company’s “buy to build” strategy. “We continue to believe that the luxury goods market will remain on a long-term growth trajectory for those brands and designers who manage to occupy a unique territory and deliver on design, quality and craftsmanship,” he said. Mauro Orietti-Carella, Zagliani’s owner and creative director since 2002, said the new setup will allow Zagliani to reach its potential and support long term growth. “We chose Labelux because we share a philosophy of uncompromised quality in every aspect of the brand,” he said. “We have always believed that brands with strong integrity and focused DNA will continue to have a future in today and tomorrow’s luxury market.” <wwd.com/business-news>

-Italy’s Sixty SpA has signed an agreement with Aldo Group to oversee its retail division in the U.S - “They’ve hired us to run their stores in the U.S. as their retail store portfolio managers,” said David Bensaboun, a vice president at the Montreal-based footwear and accessories firm. The move will reduce infrastructure and operations expenses for Sixty, a premium denim and contemporary sportswear maker. Word of job reductions at the New York headquarters has been circulating this week among employees of Sixty USA, and some of them already have begun sending out résumés. However, management has not made any announcements about operational changes to the U.S. business. A spokeswoman for Sixty USA, which distributes the Miss Sixty, Energie, Sixty, Killah, RefrigiWear and Murphy & Nye labels, declined to comment. <wwd.com/business-news>

-E-bay takes brand fight to EU - E-bay has taken a petition signed by 750,000 of its users to the European Union to ask it to amend EU competition law to stop brands from restricting the sale of their products on the internet. <drapersonline.com>

-NFL Apparel lawsuit Needles the unions - As American Needle, Inc. files papers with the Supreme Court Friday in its dispute with the NFL over licensed apparel, the sports unions remain hopeful that any ruling in the case is as narrow as possible. American Needle sued the NFL after the league's exclusive apparel deal with Reebok barred it from selling clothes with NFL logos, and the sports unions fear that the court may issue a ruling that provides antitrust exemption for the leagues that goes beyond licensing and marketing. <online.wsj.com>

-Target is ready to walk on the wild side with Jean Paul Gaultier - Sources told WWD that Gaultier is next up in the discounter’s Designer Collaboration series, a relatively new concept geared to bolster the chain’s cheap-chic status. A Gaultier collection wouldn’t appear in the stores for some time, but Target, said sources, has the ball in motion. “We don’t have anything to share other than we admire his work and incredible design aesthetic,” a Target spokesman said Thursday. A spokeswoman for Gaultier declined comment. Target’s DC series entails recruiting established designers with strong reputations to create collections based on their muses or other creative inspirations. The series made its debut with Alexander McQueen in March with McQ Alexander McQueen for Target, inspired by Leila Moss, lead singer of The Duke Spirit. Anna Sui followed this month by channeling the TV program “Gossip Girl.” She’s a fan of the show. The collections were rolled out to hundreds of Target stores and also are sold on target.com and stay available for four months or so.  <wwd.com/retail-news>

-Sears recruits merchants to sell on Sears.com - Not to be outdone by Walmart.com, Sears Holdings is expanding its online marketplace to attract more merchants that want to sell their merchandise on Sears.com. <internetretailer.com>

-Timberland Co. last week hired Carrie Teffner as its new CFO, effective Sept. 28 - Teffner, 43, comes from Sara Lee Corp., where she served in executive financial positions since 1998, including SVP and CFO of the international household and body care division, and SVP and CFO of the foodservice division. Crimmins joined the Stratham, N.H.-based company in 2002 and served as its CFO since March 2007. He will depart on Sept. 30. <wwd.com/business-news>

-The Consumer Product Safety Commission recalled approximately 2,000 pairs of Clarks children’s shoes on Thursday - The shoes were manufactured by C&J Clark America Inc., which does business as the Clarks Companies N.A. According to the agency, there is a risk that molded rubber pieces on the sole of the shoe could detach, posing a risk of choking to infants and young children. The shoes were sold at Clarks stores nationwide for between $35 and $40 beginning in February 2009 and ending in July 2009. The recall covers shoes sold in infant sizes under the “crawlers” style name and children’s sizes under the “hazy daze” style name. <wwd.com/business-news>

-MBT appoints CEO - Nearly a year after naming Ken Pucker as interim global CEO, MBT has made a permanent hire for the top spot. The Swiss footwear company this week named Jan Stig Andersen, an ex-Ecco CEO, as its new chief executive. He will officially join the company next month, when Pucker departs. <wwd.com/business-news>

-The Real Housewives announces an apparel line - Television merchandising juggernaut Bravo Media, which has already moved into the apparel and accessories business with high-end handbags ("NYC Prep") and designer clothes ("The Fashion Show") -- which the Image section discussed in this article on the future of fashion on TV -- is set to announce its latest apparel adventure later today: a line of clothing and accessories inspired by the fashion and style of "The Real Housewives" reality franchise. Bravo has struck a licensing deal with a company called Royal Plush to develop a co-branded the Real Housewives-Royal Plush line, which will consist of premium denim, loungewear, activewear, handbags and accessories. Bravo is also expected to announce the start of production on the third season of  "The Real Housewives of New York City," with Countess LuAnn de Lesseps, Bethenny Frankel, Kelly Killoren Bensimon, Alex McCord, Ramona Singer and Jill Zarin (a few of whom have been spotted at New York Fashion Week, which wraps up here today).  <latimesblogs.latimes.com>

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

09/17/2009 10:57 AM

SELLING KSWS $9.92

Dogs that are illiquid? Not what the risk manager wants me to be owning with the market up here. Sorry Brian; I'm out... for now... KM