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Placing 4th in a 3-Person Race

SEPTEMBER 23,  2009


Cash Cycles: Here’s an interesting call-out. We all know that “inventories are lean” as just about everyone is managing to margin over growth. But check out the directional trend in cash cycle in both footwear and apparel. The punchline is that not only is the cash cycle turning up, but it is turning up across all three major components of the supply chain. Usually we see changes in cash cycle components roughly net each other out as Brand, Retailer, and Manufacturer play against one another. But with more cash being pumped into these models – perhaps they are more focused on managing for growth than we are lead to believe. I know I’ll get hate mail with dozens of examples as to why such build could happen mathematically given where we are in the cycle (note: I love being at the center of such comments…so keep ‘em coming!). But like it or not, inventories and receivables are headed up and payables are headed down.

Placing 4th in a 3-Person Race - FTWR Cash Cycle

Placing 4th in a 3-Person Race - Apparel Cash Cycle

Retail Trading Call-Outs:

The table below is an overview of both price trajectory and volume trends to support that trajectory.

Perhaps the main callout is that the group’s return over the past three weeks was 13.8%, 3.27% (1 week), and -0.3% (1-day). This has happened with volume momentum going in the exact opposite direction. Mind you, this also coincides with upwards earnings revisions finally coming to halt. Relative underperformane in that context is not only understandable, but expected.

Placing 4th in a 3-Person Race - 3


Some Notable Call Outs

  • I (McGough) got a chuckle in the car this morning while listening to an interview with Burberry CEO Angela Ahrendts live from London Fashion Week. “Our UK business has been on fire for quite a while now, and the luxury market 'can only get better' as it anniversaries last year’s pain." Don’t get me wrong…I think that Burberry is a decent company with astounding content (they are two separate things), but don’t you think that’s kind of a bold statement AFTER a 91% move in the stock? Unlike when you were at Liz Claiborne or Donna Karan, this is a YouTube world. Expectations are now officially that your business will improve meaningfully. Let’s hope you deliver.
  • Keep your eyes on a newly announced iPhone app called Micello which provides interactive indoor maps of shopping malls, college campuses, convention centers, and stadiums. The software essentially aims to be the “indoor” version of Google maps. This is particularly noteworthy for retailers as the software can point the user to locations within a mall that may sell a particular product. It’s probably too early to take the browsing aspect out of a mall visit entirely, but the technology nonetheless suggests more efficient and targeted shopping trips may become more commonplace in the future. Furthermore, mall operators are likely to embrace the partnership with Micello in an effort to get even closer to their customers. Could hyper-local marketing be the next step here? Scary, but possible…
  • Over the past year, a visit to Costco has provided lots of surprises given the dearth of excess inventory in the apparel and footwear pipeline. Last evening, while making a run to stock up some staples, I discovered a large selection of men’s Seven For All Mankind denim. The selection ranged from size 30-38 and was priced at $89.97 per pair.
  • As a follow up to yesterday’s IPO callout, Peak Sports (Hong Kong listed) completed its IPO yesterday. While the shares will begin trading on September 29th, early reports are suggesting the offering was 20 times oversubscribed by local investors and 8 times by international investors. The company raised $221 million in the offering, which appears to be in the middle of the expected range of $200-$250 million.


-Holiday 2009 could see profits victory snapped from the jaws of sales defeat - The annual guessing game that surrounds the all-important holiday season has become a study of contradictions — with observers believing that even as the holiday sales performance could be one of the worst on record, retailers’ moves over the last nine months to slash inventories and control costs could mean their bottom lines actually improve in the fourth quarter. A forecast from Retail Forward on Tuesday indicated a 2% drop in apparel and accessories sales for the fourth quarter, reflecting a continuation of the consumer retreat that pushed sales down more than 9% in the same period a year earlier. Overall retail sales, excluding auto, food and drug sales, are projected to come in flat after falling 4.5% a year earlier, teeing up the upcoming fourth quarter as the second worst in 42 years. The Retail Forward study adds to the steady knell of downbeat projections for holiday, with most projecting the season’s performance to range from flat to down in the single digits. And the consensus is that consumers — having been trained by last year’s steep discounts at retail — are going to wait until the last possible moment to see who blinks first. Even with the poor sales outlook, Wall Street remains generally bullish on the sector. Retail stocks, which dipped modestly Tuesday, are up 37.8% so far this year, and Wall Street is trumpeting the industry’s gross margin potential in the wake of better inventory controls and price reductions from factories. <wwd.com/retail-news>

-Students are spending more on gadgets and less on apparel - With classes under way on college campuses across the U.S., students are spending more on computers, cell phones, MP3 players and other electronic gear and cutting back on apparel.  A survey by the National Retail Federation said just less than $13 billion would be spent on electronics and computer-related equipment, compared with $11 billion last year. Clothing and accessories ranked second at $5.77 billion, down from $7 billion; dormitory and apartment furnishings, $3.9 billion, versus $4.74 billion, and shoe purchases, $2.82 billion, down from $3 billion in 2008. Despite the recession, college students and their parents will spend about $34.4 billion to return to campus this year, up 33.8% from 2004. Clothing and accessories purchases will average $118.56 per student, down from $134.40 last year and $149.85 in 2007, the NRF said. Footwear sales will average $57.85, compared with $58.46 last year. Electronics sales will rise to $266.08 per student, compared with $211.89 last year. The NRF study, conducted by BIGresearch and based on the responses of 8,367 consumers, found that 83% of students and parents said the recession had affected their spending, with 48% planning to spend less. <wwd.com/retail-news>

-Retailers, Non-Finance Firms Exempt From Obama Consumer Agency, Frank Says - Retailers, merchants and non- financial businesses will be spared from oversight by a consumer protection agency, Representative Barney Frank said in proposing to alter the Obama administration’s proposal.  <bloomberg.com>

-Strong demand for clothing and footwear was seen in the UK, contributing to a 16% year-on-year jump in online sales - According to IMRG Capgemini e-Retail Sales Index, British consumers spent an estimated GBP3.8bn (US$6.2bn) during the month, while total month-on-month sales dropped by 10% in August. However, online shoe sales rose by 3% as parents purchased back-to-school uniforms. "The continued annual growth in the online retail market is evidence that this medium is withstanding the challenges of the economic downturn and the retailers that continue to expand and improve their online presence will no doubt reap the benefits during the festive trading period," notes Tina Spooner, director of information at IMRG. The Group also points out that clothing sales was boosted as retailers offered greater choice, price competitiveness and convenience from buying online. <fashionnetasia.com>

-USDA projections for 2009/10 indicate that world cotton stocks are expected to decline for the third consecutive season - Global ending stocks are currently forecast at 56.3 million bales for 2009/10, 5.2 million bales (8.5%) below 2008/09 and the lowest since 2003/04s 48.1 million bales. For 2009/10, the world stock reduction is largely attributable to China—the leading cotton producer and consumer—where 45% of the global decline is expected. However, stocks are expected to decline in most of the cotton-producing countries this season. In China, stocks are forecast to decline 2.3 million bales to 17.6 million, their lowest in 7 years. US ending stocks are expected at 5.6 million bales in 2009/10, 600,000 bales below 2008/09 and the lowest in 5 years.  Meanwhile, stocks in India—the second largest producer and consumer—are forecast only marginally lower and will likely play a key role in the global trade of raw cotton in 2009/10.  <fashionnetasia.com>

-Severe floods affect Atlanta mall traffic - Some retailers here are suffering because of torrential downpours and record flooding that have caused major disruptions and at least eight deaths. There was reduced activity at a few malls that depend on major roads such as Interstates 75 and 85, which were partly shut as floodwaters trapped motorists in their cars during the evening rush hour on Monday. The Arbor Place mall in Douglasville, which has 140 stores and is about 20 miles west of downtown Atlanta, closed Monday afternoon, although department stores such as J.C. Penney and Belk stayed open for regular hours. There was a fallout in traffic as consumers have sort of hunkered down over the last couple of days. The Perimeter Mall, which features Bloomingdale’s, Macy’s, Nordstrom and Dillard’s among its almost 200 stores and is 13 miles north of downtown, had “very light” shopper traffic Monday, said general manager Dennis Kemp. The National Weather Service forecast more rain this week, but said the severity will decrease. <wwd.com/retail-news>

-Shoebuy.com has joined the ranks of companies offering designer footwear on the Web -  The IAC-owned company this week launched a new Web site called Designer.Shoebuy.com, which features high-end designer names in shoes, accessories and apparel. The site offers more than 150 brands for men, women and kids, including Hugo Boss, Stuart Weitzman, Kenneth Cole and Bally. Like its sister site, Designer.Shoebuy benefits include free shipping, free return shipping and user reviews. However, the site's layout has been pared down and includes features such as brand microsites. With Designer.Shoebuy.com, we are now able to offer our design-conscious customers a streamlined way to shop for their favorite brands, while extending the same great benefits we offer to all Shoebuy.com shoppers," Shoebuy COO Bill Pryor said in a statement. <wwd.com/footwear-news>

-EPA Sues VF Corp Over TNF Foot-Odor Prevention Claims - The U.S. Environmental Protection Agency has filed suit against VF Corp., claiming The North Face made unsubstantiated public health claims regarding unregistered products, and their ability to control germs and pathogens. VF Corp is facing nearly $1 million in fines over the issue. VF Outdoor, TNF's parent, said the EPA had "not made any claims that The North Face products are unsafe or contain any unsafe substances." <sportsonesource.com>

-The Forzani Group Ltd. reported that consolidated same-store store sales for the back-to-school period increased 0.1%  - Corporate store comps were down 1.6% for the period and franchise stores rose 3.8% for back-to-school. Forzani reported that comps jumped 7.0% in the corporate stores in the last two weeks.  <sportsonesource.com>

-Perry Ellis reaches licensed agreements for Jantzen and ProPlayer - Perry Ellis International has signed two new licensing agreements for its Jantzen and ProPlayer brands with MAG Brands LLC/Millennium Apparel Group and IFG Corp. (Innovative Fashion Group), respectively. Both MAG Brands and Innovative Fashion Group are part of the Adjmi Apparel group of companies. <sportsonesource.com>

-Macy`s predicts a 13% rise in web sales this year, CEO says - The department store retailer`s web sales are expected to surpass $1 billion this year, CEO Terry Lundgren said today at the Shop.org Annual Summit. <internetretailer.com>

-Burberry Climbs After Chief Ahrendts Says U.K. Luxury Market Is `On Fire' - Burberry Group Plc rose as much as 5.8 percent in London trading after Chief Executive Officer Angela Ahrendts said the clothing maker’s U.K. business has been “on fire” as demand for luxury goods improves.  <bloomberg.com>

-Hanesbrands Inc. and Its Champion and Duofold Apparel Brands Launch Mount Everest Expedition  -  Hanesbrands Inc. announced today that its Champion and Duofold apparel brands are going to the top of the world, leading a Mount Everest expedition to drive brand awareness and showcase the company’s research and development innovation and textile science leadership. "Expedition Hanesbrands: Climb With Us” will be lead by accomplished international mountaineer and motivational speaker Jamie Clarke and will begin next month with a training climb of Mount Pumori in Nepal, a 23,494-foot-high Himalayan neighbor to Mount Everest. The Everest summit bid will take place in the spring 2010 Himalayan climbing window.  An expedition launch news conference will be held live today at 10:30 a.m. EDT from North Carolina State University’s College of Textiles in Raleigh, N.C. <newsticker.welt>

-Bernard Krief Consultants, which has submitted an offer to buy Christian Lacroix out of administration, also has made a bid to acquire embattled lace manufacturer Societé Lucien Noyon SAS with a view to developing a pole of luxury French textiles artisans, said Krief’s international director, Beatrice Alba. Battered by competition from Asian lace manufacturers, Noyon is in the final stages of its administration period. It is not known if any other suitors are after the company. Alba noted Bernard Krief’s bid concerns only Noyon’s Calais, France, site and not its factory in Sri Lanka. Krief plans to maintain the company’s Leavers lace department, which employs 80 workers, she said. <wwd.com/business-news>

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

09/22/2009 09:53 AM


Kroger is down again today, making new lows. I like new lows, especially when I can cover for gains. Great call by Levine and McGough. Re-short higher. KM


GES: Paul Marciano, Vice Chairman & CEO, sold 50,000shs ($1.9mm) less than 3% of total common holdings.

BGFV: Steve Miller, President & CEO, sold 2,000shs ($30k) less than 1% of total common holdings pursuant to 10b5-1 plan.


  • John Fisher, General Partner of Fisher Holdings (founding family), 500,000shs ($11mm) less than 3% of total common holdings
  • William Fisher, General Partner of Fisher Holdings (founding family), 1,000,000shs ($22.1mm) nearly 10% of total common holdings

CHS: Manuel Jessup, EVP – Human Resources, sold 6,666shs ($89k) after exercising the right to buy 6,666 shares less than 15% of total common holdings.

DECK: Constance Rishwain, President Simple & UGG, sold 2,000shs ($160k) approximately 5% of total common holdings pursuant to 10b5-1 plan.

JWN: Ernst Campbell, VP & Treasurer, sold 3,221shs ($101k) nearly 25% of total common holdings.