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Jimmy Choo, Where are You?

SEPTEMBER 24, 2009

TODAY’S CALL OUT: Jimmy Choo, Where are You?

As the fashionistas prepare for the arrival of Jimmy Choo’s at H&M this Fall, we suspect management is also awaiting some positive sales developments in the wake of disappointing 3Q results. This fast fashion retailer appears to be the victim of low inventory levels leaving an inability to drive revenues. August sales, which were the weakest for H&M since 2005, were clearly impacted by a lack of clearance/markdown inventory after the company’s “summer sale” left inventory levels too lean. As such, 3Q results missed both sales and profit expectations.

Despite a disappointing quarter, H&M is increasing its store expansion for the full year from 225 stores to 240 stores and announced the launch of an e-commerce platform for fall 2010 in the UK.  Regionally, sales were strong in Sweden, Norway, Germany, China, Japan, and Russia but weak in Spain, the US, and France.  Warm weather, pricing competition, and the recession were blamed for the weak sales.  Gross Margins improved 80 bps due to currency hedges (and likely lack of clearance!). 

Jimmy Choo, Where are You? - H MSGIMA

Jimmy Choo, Where are You? - H M Sales chart

Retail Trading Call-Outs:

Jimmy Choo, Where are You? - stock chart

LEVINE’S LOW DOWN

Some Notable Call Outs

  • Despite solid same store sales growth of 5.4%, AutoZone continues to see discretionary product underperform within the merchandise mix. Sales growth, as has been the case for the past couple of quarters, continues to be driven by “maintenance” products. Items such as oil filters, wiper blades, and brake pads define this category and are seeing strength as consumers look to take care of their autos proactively in the difficult macro environment. From a regional standpoint same store sales were consistent throughout the country with no notable callouts.
  • With only a token $20 million worth of share repurchase activity in 2Q, Bed Bath and Beyond is likely setting up to put some of its $1.2 billion cash balance to work. The balance sheet remains debt free and square footage growth should remain close to 6% for the next year or so. This is all sets up nicely for the company to tap the $900 million remaining in authorization in the near-term. Of course management would never signal its plans for when they’ll be buying, but with interest rates near zero, the cash balance certainly has better uses.
  • As K-Swiss looks to build momentum with its recently launched performance running shoes, they are also at work re-launching their newly acquired Palladium boot brand. In addition to two prominent billboards promoting the brand, one in Soho and the other in Williamsburg, the company’s ad agency also put together a time lapsed video of the Soho billboard being painted. Yes, they still paint billboards in NYC. Check it out: http://tinyurl.com/lzvk6v.

MORNING NEWS 

-Living wage campaign to be launched - Worker organisations in Asia are launching a campaign named "Asian Floor Wage Campaign" in October to demand international apparel buyers and big apparel brands to pay a few cents extra for their purchases as a way to ensure decent wages for garment workers. The campaign will also ask for support from trade unions and consumer movements in the US and EU, the main export destinations of apparel from Asia. Trade unions believe that big western retailers like Walmart,Carrefour, Tesco,JC PenneyandMarks and Spencerare in a position to force their low purchasing prices on garment manufacturers in Asian countries due to the global economic slowdown. The Asian Floor Wage sets a standard basic wage for garment workers across Asia, based on cost of living. It is currently calculated at 475 international dollars (using the purchasing power parity method of the World Bank) for Asian countries. <fashionnetasia.com>

-The Brazilian Association of Footwear Industries (Abicalcados) has asked the Ministry of Development, Industry and Foreign Trade to remove Vietnam from a list of countries being sued for dumping their shoes on the domestic market. The proposal was made after Brazil's Trade Protection Agency got the results of its investigation of Vietnamese shoemakers. Currently, China is the only defendant in the lawsuit. The Abicalcados’s move is expected to offer an opportunity for Vietnam’s footwear enterprises to increase their share and improve their competitive edge in the Brazilian market. The Abicalcados submitted the anti-dumping petition to the agency on October 30, 2008, asking for a probe into the imports from Vietnam, China and several other countries. Investigations were launched on December 15 and the agency found that Vietnamese shoemakers did not damage the Brazilian shoe market. The Vietnam Leather and Footwear Association said the volume of footwear exported to Brazil was relatively small, reaching almost US$40 million between January-November 2008. <fashionnetasia.com>

-Global mergers-and-acquisitions activity remains low - In its preliminary third-quarter report, released Wednesday, Mergermarket noted that the number of announced deals in the first three quarters of 2009 ranks the lowest, at just 1,759, since the same period in 2003. The value of transactions completed to date — $978.9 billion for 5,914 deals — is 48% below the volume in the first three quarters of 2008. According to the report, “The passing of the financial crisis appears to have made little impact on the established M&A league tables, at least for now.” Mergermarket points to the U.S. as having the highest near-term potential for increased M&A, although the U.S. mergers market has declined by 41% in volume year-to-date in 2009, and 34% in value. M&A in the Asia-Pacific region dropped 25% in both volume and value in the first three quarters of 2009. The European M&A market, meanwhile, declined 70% in value and 48% in volume in the first three quarters. However, Mergermarket pointed out that the Russian consumer retail sector is one area of interest for private-equity firms, because profitable Russian retailers are in need of capital. <wwd.com/footwear-news>

-EU: Textile manufacturers exempt from carbon auctioning - Key elements of the textile and clothing industry in the EU are likely to be exempt from the EU's plans to auction carbon dioxide emissions permits from 2013. According to the draft list of businesses that are under exemption released by the European Commission, selected industries including manufacturers of cotton, wool, silk, flax-type fibres, dyes, underwear, knitted and crocheted clothing would have free carbon credits from 2013 to 2020; pollution permits would be capped at the 2007-8 levels of the most efficient 10% of companies in a particular sector.  <fashionnetasia.com>

-GE, B of A in Finance Deals With BCBG and Quiksilver - The corporate retail finance group of GE Capital as well as Bank of America are the co-agents of a $400 million asset-based credit facility to BCBG Max Azria Group. The BCBG loan will be used for working capital needs, according to GE Capital. The facility may be increased to up to $450 million if certain conditions are met. GE Capital is the co-collateral agent on the facility, while Bank of America, the other co-lead, is administrative agent. BCBG is a Vernon, Calif.-based firm founded in 1989, and has more than 13,500 retail and wholesale sites worldwide. Its portfolio has 22 brands, including BCBG, Max Azria and Hervé Léger. “GE delivered the liquidity and flexibility we needed to grow our business,” said Ben Malka, BCBG’s president, who added that the loan will help the firm expand its new Miley&Max line for Wal-Mart Stores Inc. GE’s corporate retail finance group also acted as collateral agent on a $200 million asset-based credit facility for Quiksilver Inc., for which GE Capital Markets was the co-lead arranger along with Bank of America. The loan will be used for working capital needs in the Americas. <wwd.com>

-Duran Outlines New Lacoste Strategy - José Luis Duran, the new chief executive officer of Devanlay SA, Lacoste’s global apparel licensee, attended his first-ever fashion show in the Bryant Park tents earlier this month. While Duran is a newcomer to the fashion arena — even he called Carrefour’s apparel business “weak” — his core expertise in branding, international operations and retail management will be brought to bear on Lacoste. Duran said he plans to focus on three key areas of the business, which last year rang up sales of almost one billion euros, or $1.47 billion at average exchange. First, Devanlay is striving to establish a global Lacoste e-commerce business; second, the company is aiming to expand key items beyond the iconic crocodile logo polo shirt, and, third, it plans to expand Lacoste’s presence in emerging markets, which are primed for growth. <wwd.com/menswear-news>

-Sport-Haley gets Como license - Windsong Brands LLC has licensed Sport-Haley Inc., a Denver-based golf apparel specialist, to produce and market men’s and women’s sportswear under Windsong’s Como Sport brand. <wwd.com/business-news>

-H&M is to start selling online - in the UK from next autumn, following the decision made by its fast fashion arch-rival Zara to do the same last week. The announcement came as the Swedish fashion giant revealed third-quarter pre-tax profits were slightly higher than expected, although August sales were heavily down. H&M, the world’s third-biggest clothing retailer by sales, says pre-tax earnings in the nine months to the end of August were up 4% to 4.77 billion Swedish Kronor (£428m) compared with a forecast SEK4.75bn (£426m), and SEK4.59bn (£412m) last year. <retail-week.com>

-Advance Auto Parts advances its e-commerce initiative - Nearly seven months after dissolving PartsAmerica.com, which Advance Auto Parts Inc. jointly operated with CSK Auto Inc., the automotive parts retailer is gearing up its own e-commerce initiative. Early in the fourth quarter, Advance Auto Parts, No. 261 in the Internet Retailer Top 500 Guide, will launch a new e-commerce site. While key details of the site have yet to be released, the new site will have advanced features and functions, including a buy online/pick up in store program, says an Advance Auto Parts spokeswoman. “We expect to go live with the new web site early in the fourth quarter,” the spokeswoman says.  <internetretailer.com>

-Brooks to sponsor Rock 'n Roll Marathon Series over New Balance and Sugoi companies - Brooks Sports has reached an exclusive and multi-year agreement with The Competitor Group to become the official footwear and apparel partner of the Rock 'n Roll Marathon Series beginning in Spring 2010. Currently, New Balance is the footwear sponsor and Sugoi is the apparel sponsor. <sportsonesource.com>

-Local Names Maria Pinto, Lee Allison, and Hart Schaffner to Design Apparel for Olympic Delegates -  When the women of the Chicago 2016 delegation speak before the IOC next week, the outfits they'll be wearing will be designed by Maria Pinto. Designer Lee Allison has been working with Chicago 2016 for awhile and all the neckties and neckscarves worn next week are his creation. Putting the men in suits fell in the capable of hands of legendary Chicago clothiers Hart Schaffner Marx, who like Pinto and Allison, won't reveal anything about their creations for next week. <wgntv.com/news>

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

09/23/2009 10:43 AM

SHORTING KR $20.55

Kroger is up on the day and Levine doesn't do Krogering "on valuation"... Valuation is not a bullish catalyst. Trends here are nasty. KM

09/23/2009 03:07 PM

BUYING DKS $22.39

Buying after my team just met with the company in Pittsburgh. There is still 15% short interest here and plenty hedge funds hanging around in McGough's 2 year old short thesis. KM

INSIDER TRANSACTION ACTIVITY:

VFC: Rust Sharp, Director, sold 4,800shs ($347k) after exercising the right to buy 4,800 shares nearly 70% of total common holdings.

M: Karen Hoguet, CFO, sold 11,500shs ($219k) after exercising the right to buy 11,500 shares less than 15% of total common holdings.

KSS: Wesley McDonald, EVP & CFO, sold 2,000shs ($112k) after exercising the right to buy 2,000 shares roughly 5% of total common holdings.