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PSS: YouTubing Analyst Day. SSS Nuggets

PSS: YouTubing Analyst Day. SSS Nuggets

OCTOBER 7, 2009

TODAY’S CALL OUT

Notable positive trajectory in the PSS story vis/vis last year’s meeting. Much is not news to us, or our above-consensus estimates. But the bullish EBIT growth contribution expectations from Sperry and Saucony definitely stood out.

PSS: YouTubing Analyst Day. SSS Nuggets - 1

PSS: YouTubing Analyst Day. SSS Nuggets - 2

LEVINE’S LOW DOWN

Some Notable Call Outs

  • In a blow to social media (mostly blogs), the FTC has ruled that bloggers and supposed “amateur” reviewers must disclose when they receive freebies or compensation. Essentially, once monetary consideration is made in return for a review or commentary a blogger is now subject to the same ethics and rules as a professional. While I think this even’s the playing field a bit for those in the traditional media world competing with the upstart social media marketers, it is very unlikely that these regulations will be effectively enforced. This reminds me of the effort to stop illegal downloading of music and we know how that has gone.
  • Despite an intense focus on price within the grocery channel, a recent IBM survey found that 72% of respondents are more concerned with quality than price. We suspect this bodes well for those retailers focusing on actually building quality private label offerings rather than simply becoming a low cost provider.
  • In an abrupt move, specialty retailer of ink, toner, and other small office supplies, InkStop closed its doors on Friday and laid off all employees until further notice. The 152 store chain told its employees the stores were temporarily closing while a restructuring plan was devised. However, employees were further told there would be no more paychecks or benefits due to cash constraints. At one point, the company raised $80 million in private equity funds with hopes of growing the chain to 2,000-3,000 stores.
  • Early peak at same store sales trends confirms positive expectations and what is likely a day of solid results tomorrow:
    • COST Sept comps were better than expected and marked the first pos comp for company in 12 months.  Gradual improvement there continues on the topline as compares now become very easy.  Trumping same-store sales however was the better than expected earnings of $0.85 vs Street at $0.77.  Ex a $0.02 LIFO benefit it was still a sizable beat.  Gross margin expansion was the key to upside.  On the expense side, SG&A remained under pressure due mostly to lack of top line leverage. Bottom line, a gradual but improving trend on the topline against easier compares and with a slight change in mix towards more discretionary purchases should continue to drive earnings higher.  The company conference call is the key to all details including guidance, balance sheet items, and key margin drivers so I’ll be listening closely to discern anything incremental.
    • FDO showed a big bounce back in same store sales for September, up 5% after reporting a disappointing comp for 4Q.  Recall that they pre-announced the 4Q comp of 1% (Street was looking for 3.6% at the time) citing difficult compares with prior year stimulus efforts.
    • WWW mentioned their 92 company owned stores posted a 4% comp in their 3Q.  I don’t have a compare for this one, but positive comps are still a rare occurrence…

MORNING NEWS 

Skechers partners with Winner Sports to enter Indian market - Skechers USA, Inc. (NYSE: SKX), one of the global leaders in the lifestyle footwear industry, today announced that it has signed a deal with Winner Sports Pvt. Ltd. – a wholly-owned subsidiary of Pantaloon Retail India Ltd. – to license and distribute Skechers footwear and apparel in India. <indiaretailing.com>

Twenty-Six New Stores for Target - Target will open 26 new stores nationwide on Oct. 11. The retailer's expansion sees the creation of 5,000 jobs. The openings include 21 general merchandise stores, 18 of which will have expanded food offerings. Five will be full-grocery SuperTargets. Locations include Alaska, California, Illinois, Oregon, South Dakota, Texas, Mississippi, Florida, Pennsylvania and Massachusetts. <licensemag.com>

Canada to Drop Textile Import Duties - The Canadian government plans to eliminate import duties paid on textiles used in apparel manufacturing in the next five years. Although the Department of Finance will consider requests for continued tariff protection for specific products, any duties that remain in place after consultation would be phased out over a period of five years. <wwd.com>

South African Textiles Strike Ends - Clothing workers in South Africa returned to work Thursday, two weeks after a nationwide strike organized by the South African Clothing & Textile Workers Union began, but problems persist for the industry. Union General Secretary Andre Kriel said both sides had reached an agreement, with the assistance of the Commission for Conciliation, Mediation & Arbitration. At a press conference, Kriel said, “The union has always said it is better to find a solution to this situation than to have a strike.” Some 55,000 workers had abandoned their posts at the factories and taken to the streets in protest against what was considered lower-than-acceptable wage hikes. <wwd.com>

Puma Goes Mobile - Puma has signed a licensing agreement with the French mobile communications company Sagem Wireless to launch a Puma mobile handset in the second quarter of 2010. The Puma phone is to be sold in Puma stores as well as through telecom operators, and will first be launched in Europe, with a global rollout to follow. Puma declined to reveal financial terms or sales projections. However, the German active sportswear company said the move is part of its strategy to expand into new categories that complement its footwear, apparel and accessory lines. <wwd.com>

Columbia Sportswear Names Director of Apparel Design - Columbia Sportswear Co. announced that it has appointed Kathleen McNally as creative director for apparel. For the past five years, she served as vice president of design at Lucy Activewear, which is part of VF Corp. McNally brings over 20 years of senior experience in apparel design with several global sportswear brands. At Lucy Activewear, she helped build the brand from a start-up in 2000 to a leader in the women's active lifestyle marketplace prior to the company's acquisition by VF Corporation in September 2007. <sportsonesource.com>

Clothing and footwear deflation increases to 5.7% - Shop prices have fallen on a year ago and were deflationary for the second consecutive month, according to the British Retail Consortium-Nielsen Shop Price Index. Annual non-food deflation was 1.4% in September, unchanged from August. Deflation in clothing and footwear and furniture and floor coverings accelerated compared with previous month. Annual deflation in clothing and footwear increased to 5.7% in September, from 5.5% in August.

The report said that it expected non-food deflation to continue to slow in the coming months until the reversal of VAT in January 2010. Overall, shop prices were down 0.1% year-on-year and remained unchanged from August. <drapersonline.com>

American Apparel gets temporary covenant waiver - American Apparel Inc (APP.A) said it received a temporary waiver of a leverage ratio covenant tied to its $80 million credit line from British private equity firm Lion Capital LLP. American Apparel, which got the waiver from Sept. 30 till Nov. 14, said in a regulatory filing that it might exceed the maximum leverage ratio permitted under the Lion Credit agreement for the year ending Dec. 31, based on its current operating plan for the rest of 2009.

American Apparel had said in March it planned to use the $80 million loan to reduce the balance of its revolving credit facility, to repay a portion of a shareholder note, fund its working capital needs. <reuters.com>

Hilfiger Sues Former Sock Licensee - Tommy Hilfiger has sued its former sock licensee for breach of contract, accusing the manufacturer of missing royalty minimums and threatening to dump merchandise to unauthorized sellers. In a complaint filed Oct. 2 in U.S. District Court in Manhattan, Tommy Hilfiger Licensing alleged that Mountain High Hosiery Ltd. had trouble meeting sales and royalties targets over the course of their agreement, which lasted from 2002 until earlier this year. According to the complaint, the relationship disintegrated in April after Hilfiger declined to approve another acquisition bid by slipper maker R.G. Barry Corp. The deal would have required the brand to reduce its royalty rate by 3 to 5 percent and waive minimum sales figure requirements. <wwd.com>

IT Holding Restructuring Deadline Approaches - After filing for the Italian equivalent of Chapter 11 bankruptcy protection in February, IT Holding SpA will learn its fate in a little more than a month from now, and its prospects look rosy — even if it doesn’t remain whole. Having invited letters of intent at the end of September, Andrea Ciccoli, one of IT Holding’s three government-appointed special commissioners, told WWD he aims to identify potential buyers for some or all of the fashion group’s assets in the next three to four weeks, ahead of submitting a restructuring plan to Italy’s minister of economic development for approval by Nov. 10. The plan may or may not include recommendations to break the group up, he stressed. <wwd.com>

FedEx extends home delivery service via the Postal Service to all retailers - FedEx announced yesterday it is opening up its SmartPost delivery deal with the U.S. Postal Service to smaller retailers. Previously, the program was only open to high-volume retailers that shipped several hundred packages a day. Now there is no minimum order requirement, and any retailer can request SmartPost service when they schedule a FedEx Ground pickup. Packages sent via the SmartPost program are picked up and sorted by FedEx, then handed off to the U.S.P.S. for delivery to consumers’ homes <internetretailer.com>

Fitness Equipment Sales Curtailed by Economy - For the first time in 20 years, overall sales in the fitness equipment industry took a ‘hit,’ but it was not due to any lack of interest in the fitness/exercise category.  According to the Sporting Goods Manufacturers Association’s (SGMA) recent analysis of Tracking the Fitness Movement (2009 edition), the major reason for the dip in sales of fitness and exercise equipment can be attributed to the struggling U.S. economy. While activity at the cash register suffered, participation rates were stronger.  Of the 28 aerobic, conditioning, and strength activities listed in Tracking the Fitness Movement, 17 of them showed an increase in participation from 2007 to 2008.

<sportsonesource.com>

Barneys to Feature 'SNL' in Holiday Windows - Live from Barneys New York, it’s Saturday Night. For the holiday windows of its Madison Avenue flagship, Barneys is presenting various tableaux depicting memorable “Saturday Night Live” moments culled from more than three decades and filtered through the kooky lens of creative director Simon Doonan. The retailer is hoping that partnering with “SNL” as it celebrates its 35th anniversary will give it a boost. <wwd.com>

Versace to Close Japan Stores, Will Review Strategy - Gianni Versace SpA will close its Japanese stores and review its entire business strategy, as demand for luxury goods declines in the world’s second-largest economy. “The Versace boutiques in Japan no longer represented the brand image and it was felt to be more advantageous for the company to close them and start with a clean slate,” Milan- based Versace said yesterday in a statement. The fashion company has three stores in Japan, according to the Web site. <bloomberg.com>

Nat Nast to sponsor UFL coaches apparel - Nat Nast, which cut its teeth as a bowling shirt brand, has switched allegiances. The company, which has morphed into a luxury men’s wear collection, has inked a deal with the newly launched United Football League to dress its head and assistant coaches. The UFL’s inaugural season kicks off on Thursday. The coaches will wear shirts, pants and shorts from the Nat Nast fall and resort collections that will sport both the UFL logo as well as Nat Nast’s lion emblem. <wwd.com>

Primark improves commitment to living wage for overseas workers - Primark has made improvements to its commitment to paying overseas workers a living minimum wage, according to the third Let’s Clean Up Fashion report published by pressure group Labour Behind the Label. Labour Behind the Label’s annual Let’s Clean Up Fashion report scores fashion retailers based on submissions they make to the not-for-profit organization detailing measures they are taking to ensure overseas workers in their supply chains are not exploited. Primark joined Gap, Marks & Spencer, Monsoon, New Look and Next in scoring highly. All of these retailers demonstrated a systematic approach to wage increase. <drapersonline.com>

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

10/06/2009 10:03 AM

SELLING PSS $18.54

McGough called out buying into a lower price ahead of the analyst day and here we are, higher, into the analyst day! Selling high. KM