Anticipating Solid September Sales
OCTOBER 5, 2009
TODAY’S CALL OUT
Another month has passed and we all know what that means. Same store sales day is Thursday with the reporting of September sales results. As we have pointed out in the past, the relevance of sales day ex- Wal-Mart is shrinking, but we still can’t ignore the inherent volatility, speculation, and excitement that this day is sure to bring.
So what do we know heading into Thursday’s report? First, there is no question September was a good month for same store sales. Reported results will largely be positive on an absolute basis driven in part by the Labor Day shift earlier in the month, in part by easing comparisons (both on a weekly basis and for the month) and to a lesser extent a slight uptick in overall apparel/footwear demand. Over the course of the past five weeks, the marketplace has ranged outright euphoric (at the beginning of the month) to generally positive.
Additionally, we have heard specific commentary from PVH and WRC, both commenting on a sequential pick up in their respective retail businesses. PVH also suggested that the department store channel was seeing an uptick and went on say that some Fall orders were being pulled forward to meet current demand. The weekly SportscanInfo apparel and NPD Footwear data also showed that September was a better month, although trends in both data feeds did show sequential deceleration over the past three weeks.
I am pretty sure the combination of very positive whispers surrounding September sales, coupled with confirmation of these trends from a handful of retailers leaves expectations high as we approach the reporting of actual results. Remember this month marks the beginning of a four month period where year over year comparisons for almost every retailer will ease to some of the lowest levels in recent history. There is no question inventories are tight (and light), comparisons are easy, and underlying demand is stable. Ultimately the set up for a trade on Thursday’s results hinges on expectations and not on reality. The reality is the results will look good and will continue to fare well for the next few months. None of this is new of course, this is a set up investors, The Street, and the retailers have all been anticipating for several months now. Recognizing it is both difficult and usually inaccurate to make a bold sales day prediction, I still believe that the day may be ultimately be marked by relative disappointment. That’s not to say reported trends and commentary won’t be positive, it’s just highly anticipated at this point.
LEVINE’S LOW DOWN
Some Notable Call Outs
- Warnaco sized up their international business potential with a focus on retail store expansion. With same store sales from international stores up 3.3% Q3 to date (an acceleration from Q2 which was up 1%), WRC believes they can double their current 1000 store base in 5 years. Over that same time frame, 30% of total revenue would be driven from CK international retail. Asia and Europe will remain the key markets to obtaining this goal.
- As a result of conservative inventory management, Columbia Sportswear has not taken a speculative inventory position on Fall apparel/outerwear as it has traditionally done in the past. Recall that the highly outerwear-dependent fourth quarter can often be impacted by weather anomalies, leading to both upside and downside depending on the level of at-once ordering. Any uptick in holiday demand due to inclement weather or overall demand this year will likely drive better margins but will not have a meaningful impact on revenue.
-Baby Boomers led the decade’s consumer spending spree, but Generations X and Y will likely be at the forefront of a recovery - Panelists at Retail Forward’s 2009 Strategic Outlook Conference on “Retail Renewal” at the Marriott Marquis, Frank Badillo, vice president and senior economist at Retail Forward, said the U.S. should see a pickup in GDP growth in the fourth quarter, with an uptick in GDP throughout 2010. Badillo expects the younger generations to help boost the specialty channel, which is where that demographic segment typically shops. Boomers, however, are the core shoppers at department stores, and they are focused on rebuilding savings and equity drained by the recession. Lois Huff, senior vice president, said while Boomers still constitute a large share of the population and spending power, the “engine of the Boomer has run out of gas.” Gen Xers haven’t pulled back nearly as severely as Boomers in the past year, and Gen Y has been constrained even less, she said. <wwd.com/retail-news>
-Top US sport participation report - Over the past eight years, team sports participation has fluctuated up and down, affected both by social trends and economic headwinds. Below, the most popular team sports among athletes six years and older and their changes since the start of the decade: 1) Basketball, Participation 26.3 million, 8-YR Change: 0.1%, The ultimate court sport continues to dominate all others when it comes to participation in the U.S. Consistently likeable since its origin, basketball is an affordable activity for children, teens and adults, particularly in the current recession. And while many companies are bullish on the b-ball market, Nike has pulled out all the stops, releasing a number of innovative designs in 2009, including the Hypermax, Zoom Soldier and Shox Vision. 2) Baseball, Participation 15 million, 8-YR Change: -5.2%, Though it’s still considered “America’s pastime,” baseball has seen a significant decline in participation among Little Leaguers, possibly because there are more sporting options for kids now than in the past. Nike, yet again, scores as the MLB footwear of choice, especially among the New York teams, the Yankees and the Mets. 3) Outdoor Soccer, Participation 14.2 million, 8-YR Change: N/A*, The international language of the sports world is played in more than 200 countries, and has become one of the most popular, co-ed sports in the U.S. Helping to fuel the flames are product collaborations such as David Beckham’s deal with Adidas last year to create Beckham Predator PowerSwerve TRX FG soccer cleats, the same cleats he wore during the 2006 FIFA World Cup. 4) Volleyball, Participation 8.2 million, 8-YR Change: N/A*, Volleyball is spiking in popularity among high schools and colleges in the U.S. Though most athletes tend to favor a relaxing game on the beach, an estimated 46 million Americans play this physically demanding court sport. Players must be able to leap, dive and perform to their fullest, and many have said they favor gel-cushioned Asics sneakers for indoor games. 5) Football, Participation 7.7 million, 8-YR Change: -6.5%, Football has seen a heavy drop in participation over the last few years, especially when it comes to organized and sanctioned play, which has been surpassed by casual, pick-up games. The SGMA estimates the trend may have something to do with families feeling the economic pinch. Nevertheless, footwear firms such as Under Armour continue to have faith in this rough-and-tumble sport. <wwd.com/footwear-news>
-Sally Beauty Holdings Inc. said Friday its Beauty Systems Group LLC subsidiary has acquired Schoeneman Beauty Supply Inc. for $61 million - The acquisition, which will help BSG increase its national presence, particularly in the Northeast, is expected to add slightly to the Denton, Tex.-based company’s earnings per share in 2010. Upon full integration of Schoeneman, the hair products and beauty supplies distributor also anticipates cost synergies to be realized, which will further enhance EPS in 2011. “This acquisition directly supports BSG’s strategy of extending our distribution reach in important geographic regions of the U.S.,” said BSG president John Golliher. “We expect this combination to provide us with a greater opportunity to compete in Pennsylvania, southern New Jersey, Delaware and West Virginia.” <wwd.com/business-news>
-Aldo Group is betting on its retail expertise for a new business called Aldo Retail Services - The division, which last month took on Sixty Group as its first client, includes an a la carte offering of retail-development services, from store operations and merchandising to accounts payable and retail portfolio management. “Any brick-and-mortar retailer in 2009 has to be looking at every way to leverage the investments they’ve made,” said David Bensadoun, Aldo’s group VP for global retail. “We see this primarily as a way to leverage our own expertise to help brands in which retail is not their core business.” Bensadoun said that Sixty Group, which will take advantage of Aldo’s store operations and real estate portfolio management services for the U.S. market, represents Aldo’s target client: “Someone who is already an established brand with good wholesale accounts and a few flagship stores, but who is looking to build a small retail chain of 25 to 100 stores.” While Aldo probably will not work with direct footwear competitors in the contemporary space, Bensadoun said shoe brands in the comfort, kids’ or discount arena would be targets for its retail services division. <wwd.com/footwear-news>
-Again, Coach Inc. has accused Target Corp. of selling unauthorized reproductions of its handbags - In a complaint filed Oct. 1 in U.S. District Court in Manhattan, the New York-based accessories maker alleged Target has sold knockoffs of its Patchwork and Ergo designs. Coach said it spotted the items for sale at the retailer at some time over the summer. “Target is not authorized by Coach to manufacture, distribute, advertise, offer for sale, and/or sell merchandise bearing Ergo Designs or the Signature Patchwork Designs or designs confusingly similar there to,” the brand’s attorneys wrote. Minneapolis-based Target did not return a call Friday seeking comment on the allegations. Coach is seeking an injunction against the items’ further sale, profits from infringing goods sold, attorneys’ fees and unspecified damages. <wwd.com/business-news>
-Perry Ellis International has promoted John Voith to president of sportswear and golf division - The new post will place Voith at the head of the company’s growing golf business and core sportswear brands, which include Cubavera and Axist. Voith joined the company in 2000, and most recently served as executive vice president of the sportswear division. <wwd.com/business-news>
-Retail employment levels remained lean in September as the U.S. economy continued to shed jobs, putting a crimp into hopes for the holiday season - Department stores cut 2,200 jobs in September to employ 1.53 million, after adding jobs in August for the first time since May, the Labor Department said Friday. Specialty stores added 1,600 jobs to employ 1.41 million, but didn’t erase a significant drop in August, when 9,500 specialty store jobs were eliminated. <wwd.com/business-news>
-Burberry increases profit expectations after re-negotiating Japanese apparel license - Burberry said it expects to boost operating profits by $6.4 million in the year ending March 2010 after re-negotiating its Japanese apparel license with two local partners. The company said it had drawn up a new agreement with its current licensees Sanyo Shokai Ltd. and Mitsui & Co. Ltd. The new deal foresees higher royalty payments than previously planned for the 2009-10 fiscal year, and fewer years on the license. Burberry's agreement will now expire in June 2015 rather than 2020. <wwd.com/business-news>
-When it comes to racking up big sales in a tough economy, some savvy kids’ retailers are finding it pays to think small - While powerhouse children’s companies with lots of manufacturing and marketing muscle continue to have an edge, independent retailers are increasingly turning to newer, boutique brands to differentiate themselves in today’s competitive market. According to retailers, smaller brands have a fresh approach to design and, more important, distinct brand messaging. Those strengths are turning indie labels such as Pediped, Morgan & Milo and See Kai Run into bonafide shoe brands. <wwd.com/footwear-news>
-Europe Retail Sales Drop for 15th Month as Unemployment Rises - European retail sales fell for a 15th month in August as rising unemployment curbed consumer spending. Store revenue in the 16-nation euro region declined 2.6 percent from a year earlier after sliding 1.9 percent in July, the European Union’s statistics office in Luxembourg said today. Economists predicted a drop of 2.4 percent, according to the median of 13 forecasts in a Bloomberg News survey. From the prior month, sales fell 0.2 percent. Hennes & Mauritz AB, Europe’s second- biggest clothing retailer, said on Sept. 24 that a sales decline worsened in August with revenue at stores open at least a year dropping 11%. <bloomberg.com>
-IMF Statement about Asian Economies - Even with this good news Asia is facing a key time since unemployment will increase in the coming years while political leaders from the region will have to face up to the challenge of consolidating a new model based on greater internal private demand, stated Singh during a press conference held at the Annual Meeting of the IMF and World Bank. According to IMF forecasts published this week, Asia as a whole will grow by 2.8% this year and by 5.8% in 2010. Asian countries were badly hit during the worst recession in recent years, according to Singh, who stated that Asian exports fell by 30%; there was capital flight and a sharp decline in production. <fashionnetasia.com>
-Wal-Mart Bodegas Lift Profit in Mexican Recession - Wal-Mart de Mexico SAB, Latin America’s largest retailer, is profiting from the worst recession since the 1930s by offering smaller, cheaper products to Mexicans at its Bodega Express shops. Walmex, as the Mexico City-based retailer is known, will report this week a 12 percent increase in third-quarter net income to 3.66 billion pesos ($266 million), according to the average analyst estimate. A rise would mark the fourth straight quarterly advance in earnings. <bloomberg.com>
-Target Reveals Licensed Gift-Giving Ideas - In response to similar initiatives by competitors Wal-Mart and K-Mart and anticipation of the holiday season, Target has revealed highlights for gift givers—many of which include licensed products. The retailer will offer popular licensed toys, including action figures from Transformers, G.I. Joe and Bakugan, as well as Disney Princess sets. Toys for older kids include an electric guitar from Maroon 5 frontman Adam Levine, the Shaun White Snowboarding video game for Wii and Twilight journals. <licensemag.com>
-Patagonia Footwear and Chaco Restructure Marketing Teams - Wolverine World Wide will put additional marketing and product development support in place for both Patagonia Footwear and Chaco. Entering its fourth year at market and with a growing sales force, Patagonia Footwear will strategically restructure its internal team with Jamie Barbor being appointed to director of Patagonia Footwear and will oversee all facets of the Patagonia Footwear business. <sportsonesource.com>
-USA Football to Award $1 Million in Grants - USA Football, the sport's national governing body on youth and amateur levels, announced that it will award $1 million in equipment grants to youth and high school football programs across America this fall based on merit and need. USA Football's grant program has assisted the youth and high school football community since 2006 and will have distributed more than $2 million through 2009. USA Football is the official youth football development partner of the NFL, its 32 teams and the NFL Players Association. USA Footballs partners include Under Armour and Riddel.
-Wyclef Jean to Design a Line of Boots for Timberland - Wyclef Jean has taken time out of his busy schedule to co-design a line of eco-friendly footwear with Timberland. The collaboration is part of the company’s EarthKeeper program, which will help with the reforestation project in WJ’s homeland of Haiti. Jean will design 16 styles of footwear; the shoes will be constructed out of recyclable and organic materials. <beanstockd.com>
RESEARCH EDGE PORTFOLIO: (Comments by Keith McCullough): NKE
10/02/2009 09:47 AM
COVERING NKE $61.88
Great call by McGough, shorting the euphoria of the moment out the EPS report. Booking the gain here. KM