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RETAIL FIRST LOOK: MARK YOUR (IPO) CALENDARS

SEPTEMBER 22, 2009

 

TODAY’S CALL OUT

Recently Announced Retail/Apparel IPO’s

While Dollar General’s impending IPO is likely one of the largest and most visible IPO’s on the calendar, it is worth noting that there are a handful of other apparel/retail companies lined up to go public in the coming months. For now, the list is as global as we’ve seen in a long time, but we suspect many U.S. private equity firms will be watching closely to see how these offerings fare as they too contemplate monetizing some of their “peak-market” acquisitions.

  • Rue 21 (US)- 500 store specialty chain targeting 11-17 year old men and women. Merchandise is value-priced and concept is focused on small and middle markets. Sanders Karp & Megrue are the majority shareholders.
  • Dollarama (Canada)- 600 unit Canadian dollar store. Originally acquired by Bain in 2004.
  • Dollar General (US)- 8,500 store deep-discount retailer currently owned by KKR, GS Capital Partners, and Citigroup.
  • Yoox (Italy) Italian multi-brand luxury e-commerce retailer serving 28 countries. Backed by Benchmark Capital.
  • Myer (Australia) Largest department store in Australia currently owned by TPG.
  • Peak Sport (Hong Kong) Chinese sportswear maker sponsoring several NBA Players. May raise as much as HK$1.9 billion ($246 million) in a Hong Kong initial public offering, according to a sales document. 

LEVINE’S LOW DOWN

Some Notable Call Outs

  • Despite the large amount of growth for American brands in China, local companies are not sitting still. Li Ning, China’s largest domestic manufacturer of athletic apparel and footwear hired Portland based design firm, Ziba, to overhaul the brand. The company hopes to not only compete more effectively with Nike’s push into China but to also take the Li Ning brand outside of its domestic market. Ziba has been working on the rebranding project in secrecy for nearly two years.
  • Improving momentum in PVH’s retail business continues, with same store sales currently tracking up 3-4% in September. The improving trend follows a 2% increase in August and flat performance in July. Management now believes the improved sales trend will allow operating margins to exceed the original 3% forecast for the year, with significant upside potential occurring over the remainder of 2009. Additionally, management noted that business has picked up across the board in the wholesale divisions over the past 3 to 6 weeks. At Macy’s, PVH’s business is “very strong” with AUR’s tracking above expectations as well as reorders.
  • Our meeting with DKS last week revealed some interesting facts about the company’s key competitor in Texas, Academy Sports. The privately held retailer currently operates 110 stores of which 73 are in Texas. DKS management believes Academy is generating almost $2 billion in annual sales out of its prototypical 80-100k/sq ft stores. While heavily concentrated in Texas, Academy recently opened distribution facilities in the Atlanta area to support eastern expansion in states including TN, NC, and KY.

MORNING NEWS 

-Price concerns are driving sourcing executives out of China and into neighboring countries - China is still the easiest place for companies to source because it is so well established, but it is no longer the most cost effective, an increasingly important element of sourcing decisions in the current economy, production specialists said. As a result of the search for lower-cost alternatives, companies are beginning to source more from countries such as Vietnam, Bangladesh and Pakistan, said Munir Mashooqullah, principal and founder of Synergies Worldwide, a sourcing firm with more than 50 clients. “You have to work to find the right factory because the obvious ones are not going to fit into the pricing model which is required in 2009 and 2010,” Mashooqullah said. Imports from Vietnam and Bangladesh are outperforming most other countries year-to-date, according to the Commerce Department’s Office of Textiles & Apparel.  Bangladesh and Pakistan manufacture mostly basic, commodity items, while Vietnam produces a product mix similar to China’s, but with a lower labor rate. <wwd.com/business-news>

-The trade relationship between the U.S. and China has entered a complex and contentious new stage - With tensions escalating over President Obama’s decision to impose tariffs on Chinese tire imports at the behest of a powerful labor group, the two countries have ended a relatively stable period of trade relations. The U.S. and China share one of the largest commercial relationships in the world — China is the second largest trading partner of the U.S. behind Canada — while being on opposite ends of the political spectrum: leader of the free world versus most populated country long run by Communist dictatorship. But the trade balance between the two countries has been lopsided for years, with the U.S. posting record deficits, often prompting calls at home for protectionist actions against China. The U.S.-Sino trade relationship also presents significant exposure for the fashion industry, which imported $37.93 billion of apparel and textiles from China in 2008. <wwd.com/business-news>

-As if luxury brands didn’t have enough problems coping with the global recession, they now have to battle two perceptions: commoditization and declining quality -According to a recent survey by the Luxury Institute, 48% said luxury products are too accessible and are no longer exclusive; 40% believed luxury brands are becoming a commodity, and 52% said luxury brands that also sell products for mass consumers are no longer luxury brands. And while superior quality and craftsmanship continue to be attributes most associated with luxury brands, a large percentage of wealthy consumers perceive that those characteristics are being delivered worse today than in years past. Looking ahead to the balance of the year, just 7% of wealthy consumers in the survey said they will spend more on luxury goods and services, although 21 % said they are likely to spend more on discounted goods and services. Of those who will be spending their cash, 55% said they will buy more of what they need rather than what they want. <wwd.com/business-news>

-The pressure is building for holiday - Consumer behavior is the X factor, and if the recent past is any indication, shoppers will demand value and put off purchases on the expectation that stores will blink and cut prices. Moody’s Investors Service said in a recent research note that department stores — even with inventories more in line with sales than during the depths of the recession a year ago and despite better than expected first-half earnings — are likely to beat the discount drum for holiday. “We believe there is a high risk that the American consumer will have a ‘discount staring contest’ with the department stores by delaying purchases until they see a level of discounts that they believe offers them value,” the ratings agency said. “We believe that the department stores will likely blink first by opting to quickly mark down rather than risk having the inventory left over after the holiday season.”  <wwd.com/business-news>

-UK Retail chiefs warned that retailers face further pressures on consumer spending throughout 2010 - New Look chief executive Carl McPhail said: “I’m not convinced we’ll see a recovery in the early part of next year as there will still be pressures, not least from unemployment, and our research shows customers are all concerned about that.” McPhail’s comments are included in a survey commissioned by PR firm Kreab Gavin Anderson, which found many retailers believe the consumer market will not pick up until 2011. Just over a third of those questioned – 34% - are not anticipating strong growth until 2011 or even later. Just 13% expected the consumer market to pick up significantly this year. And nearly all – 94% - said they expected a slow recovery as tax rises squeeze shoppers’ disposable income. Despite fears, two-thirds said they were more positive than seven months ago as fears of economic Armageddon had not emerged. Retail bosses also warned that Christmas would be flat this year. Rose said: “It will be a roller-coaster. Last Christmas was exceptional in terms of the global economic environment. This year there will be less background noise but a bit more competition.” Andrew Higginson, chief executive of Tesco’s Retailing Services division, said the market will be “flat at best” for UK retailers over Christmas. He added: “I think the market will be flat at best at Christmas and part of that will be deflation. Although currency falls suggest we should see a bit of inflation I don’t think the competitive market will allow it.” <drapersonline.com/news>

-Skate Footwear Growth Slows, but Performs for Back-to-School - Although skate shoe growth is showing some signs of softening, the category certainly is not in crash mode. Conversations within the industry as well as data from SportScanINFO indicates that what's occurring is a slowing in sales gains in the recessionary climate and perhaps a little maturity after several years of high-double digit growth for the category. Many feel that like many other footwear categories, the skate category is also showing some signs of struggling in the downturn as retailers remain cautious around inventory investments. The increasing popularity of canvas vulcanized shoes - which also carry a lower price than core skate shoes – is also said to be impacting the category. But as skate shoes are increasingly being used as casual shoes — and skate brands themselves move into other categories — many skate shoe insiders claim it's becoming more and more difficult to classify the skate category.  <sportsonesource.com

-SIA Releases 2009 Snow Sports Market Intelligence Report -  While the 2008-09 season will be remembered for the worst economic conditions since the Great Depression, snow sports participation was healthy and some categories of equipment, apparel and accessories grew. 2008-09 Sales: $2.8 billion in sales of snow sports equipment, apparel, and accessories from specialty shops and Internet sales. Category breakdown: $760 million in equipment, $1.1 billion in apparel, $951 million in accessories. Adult high performance alpine ski boots were a hot trend, with an increase of 16% in units sold and an additional $11 million in sales. Online sales grew 12% in dollars and 23% in units $547 million total Internet sales were recorded 15% of all snowboard equipment was sold online. 2008-09 Demographics/Participation: 1 in 14 of Americans consider themselves to be skiers or riders, 14.8 million Americans participated in a snow sport in 2008, The average snow sports participant is about 30 years old, has a college degree and household income exceeding $100,000 annually, 1 in 5 female snowboarders are over 35 years old and plenty of girls are in the pipeline, the snow sports demographic experienced a doubling in unemployment rate during the 2008.09 season as the economy tanked. <sportsonesource.com>

-Hermes CEO Sees No Light in `Tunnel' This Year on Weak Japanese Recovery - Hermes International SCA Chief Executive Officer Patrick Thomas said he isn’t optimistic about the next six months because of a delayed economic recovery in Japan, the French luxury-goods maker’s biggest market.  <bloomberg.com/news>

-U.K. August Online Sales Climb More Than Expected on Clothing Demand - U.K. online retail sales climbed more than expected in August as shoppers, lured by competitive pricing and improved returns policies, spent more money on clothing and electrical goods. <bloomberg.com/news>

-Newsweek ranks America's retail companies by their environmental considerations - Top 10 Green Rankings of 2009: Kohl's, Staples, Gap, JC Penney, Macy's, Wal*Mart, Best Buy, Whole Foods Market, Limited Brands, Target.  <greenrankings.newsweek.com>

-The TJX Cos. Inc. board on Monday approved a new stock buyback program  - The $1 billion represents about 6.2% of the off-price retailer’s outstanding common stock at current prices, the company said. TJX, which is based in Framingham, Mass., said it expects to buy back $625 million of stock in fiscal 2010. The latest repurchase is the company’s 10th since 1997.  <wwd.com/retail-news>

-Scott Sible, the president of the Merrell and Chaco brands at Wolverine World Wide, plans to retire at the end of the year - Sible took over at Merrell domestically in November of 2002 when he was promoted to VP and general manager for the U.S. Merrell performance footwear operations at WWW. <sportsonesource.com>

-Stride Rite Corp. unit will now do business under the name Collective Brands Performance + Lifestyle Group - The name change is meant to better reflect and communicate the range of performance and lifestyle brands comprising the company and its new business model. Collective Brands Performance + Lifestyle Group includes Sperry Top-Sider, Saucony, Keds and the Stride Rite Children’s Group that encompasses Stride Rite, Robeez, Keds Kids, Saucony Kids and Sperry Top-Sider Kids. The children’s group labels are sold through Stride Rite stores and wholesale partners. Collective Brands Performance + Lifestyle Group is headquartered in Lexington, Mass. <wwd.com/business-news>

-Christian Louboutin and Jimmy Choo were shoe winners of the Emmy's - The long flowing trains often made it hard to pick out the shoes during the 61st Annual 2009 Primetime Emmy Awards on Sunday, but from what we can tell, Christian Louboutin and Jimmy Choo were the clear winners of the night. <wwd.com/footwear-news>

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

09/21/2009 10:30 AM

COVERING AMZN $89.49

Runkle's duration on this short call is longer than what this company is setting up to print for the quarter. The math is telling me to get out of the way for this quarter, so I will. KM

INSIDER TRANSACTION ACTIVITY:

JWN: Margaret Myers, EVP, sold 13,764shs ($433k) upon exercising the right to buy 13,764 shares nearly 50% of total common holdings.

DKS: Jeff Hennion, EVP – Chief Marketing Officer, sold 10,000shs (~$230k) upon exercising the right to buy 10,000 shares less than 20% of total common holdings.

ROST: Michael Balmuth, Vice Chairman, President & CEO, sold 17,457shs (~$840k) upon exercising the right to buy 17,457 shares less than 5% of total common holdings.